By Ole S Hansen
(Head of Commodity Strategy, Saxo Bank)
Relative Strength Index (RSI) is a technical-momentum indicator that attempts to determine when a market is in an overbought or oversold condition. It is deemed to be overbought when above 70 and oversold when below 30, but traders often have individual preferences and set their parameters accordingly.
Relative Strength Index is best used as a valuable complement to other individually preferred technical tools.
The energy sector has been well supported during the past couple of weeks as Libyan oil production once again has almost come to a halt.
In the United States, the rapid inventory build has slowed while Cushing continues to draw and this together with the expected seasonal pick-up in demand, has seen a rapid rise in net-long positions held by speculative investors such as hedge funds.
The rapid ascent seen this May has slowed over the past couple of days and short-term indicators, such as the five-day moving average, may signal some additional weakness.
The key will be Thursday’s inventory report which has been delayed by a day due to the memorial holiday on Monday.
Brent Crude oil continues to be drawn to the USD 110/barrel level while WTI Crude have found strong resistance ahead of the double top just below USD 105/b.
Precious metals
The precious metal sector led by gold has moved on the defensive following the technical break below key support yesterday.
The yellow metal is showing early signs of being oversold, but so far we have only seen a shallow bounce today which leaves the door open for further losses towards 1,245 USD/oz.
Palladium has risen to the highest since August 2011 and in the process left the other metals, including platinum, behind.
The current rally is being driven by speculative funds who continue to buy on each new high and while rallies are great to be a part of, this particular metal suffers from the same low liquidity issues which recently triggered a tumble in nickel.
So for those lucky ones who got involved: enjoy the ride but don’t forget your stop.
agriculture sector
Low Relative Strength Index readings have spread across the agriculture sector apart from cocoa which has rallied to a 2-1/2 year high on questionable fundamentals.
Heavy rains in the Ivory Coast have caused some damage in several growing areas but new production reaching the ports in both Ivory Coast and Ghana are running well ahead of last year’s pace. This leaves the price exposed to a correction should the weather situation turn dryer again.
Ample global supplies of wheat and a recent improvement in the competitiveness of Black Sea and European wheat as the dollar rises, continues to force the price lower in the two main trading centres of Paris and Chicago.
Adding to the bearishness, which has now seen wheat fall in 14 out of 15 sessions, has been a United States Department of Agriculture report pointing towards spring planting being well ahead of schedule while Russia has increased its export expectations by 3 million tonnes to 25 million tonnes during the 2014/15 season.
THE PENINSULA
