10-02-2017

Capesize market could soon reach “bull” mode says freight derivatives specialist

Capesize

Continued weakness in the Capesize Index has seen us trading below the more important US$ 6,570 support level. This has created a new low and puts us into bearish territory once again. Support can be found at US$ 5,354 as this is the low from May 2016. A close below this level could push the index back to the March 2016 lows of 2016 at around US$ 2,000.

It’s not all bleak for the index as the weekly stochastic is now showing a bullish divergence, although not a buy signal it does suggest that the downside momentum is starting to weaken. A close on the weekly chart above US$ 4,911 would be above the weekly pivot point and suggest that buyers are willing to support the index, and a close back above the previous low of US$ 6,570 would have potential bullish implications going forward. Note the last two previous corrections have lasted 6 weeks. We are currently on week 6 of this correction, which in conjunction with the bullish divergence could suggest that the current downward move could soon exhaust.

Capesize Cal 18 5 TC futures are now approaching a key level of resistance at US$ 11,990 and this will be a key level going forward as above this level will put the Cal 18 into bullish territory for the first time from a weekly perspective. Secondary resistance can be found at US$ 13,013 as this is the low dating back to May 2015. With the stochastic a t 94 and in overbought territory we would expect the first of the two resistance levels to hold in the short term. For the support levels we look to the daily chart which has already started to turn lower on price and the stochastic. A close below the low of US$ 11,614 will create the first lower low (and lower high) since 9-12-16 and this will be significant as it suggests technical weakness in the market. Secondary support can be found at US$ 11,232 and we should expect this to be tested if the primary support is broken.

The Q2 5 TC has recently found support on the 50 period MA and is currently testing the 34 period EMA at US$ 8,209. A close above this level would suggest that we could look to test the US$ 8,675 resistance. However the stochastic at 35 is not yet in oversold territory implying there is potential room for further downside. It is worth noting that the stochastic is pulling back further than the price and this would imply that even on an upward move there is weakness in the market Q2 futures. A close below US$ 7,960 creates a fresh low, and will also be below the 50 period MA which would indicate further weakness in the short term, with US$ 7,555 being the next logical target.

The Panamax Index remains in bearish territory, as the shorter term moves are currently making fresh lows. The daily stochastic is now in oversold territory at a time the weekly stochastic has started to turn bullish suggesting that we could soon look to find support in the index. Technical resistance can be found at US$ 7,768, a close above this level should attract technical buying in to the market and likely to push the index up the US$ 8,312 resistance. Near term support can be found at the recent low of US$ 7,374. A close below this level would signal further downside weakness with the longer term trend support as the target of US$ 6,880. Technically we are still in bearish territory until we trade, and close above US$ 7,768.

Cal 18 futures remain in bullish territory, and are now approaching the Fibonacci resistance zone between US$ 8,850 and US$ 8,905 at a time that the stochastic is beginning to look overbought at 97. Further resistance can be found at the US$ 9,539 Fibonacci level. The recent low of US$ 8,830 will be the first support level. A close below here would be the first low break since the 14-12-16 and would suggest either a corrective phase, or a market retracement is beginning. Further support can be found at US$ 8,273. Technically bullish, a close below US$ 8,830 would suggest some form of market retracement.

Momentum on the March futures is now starting to weaken with the stochastic showing a bearish cross as we pull back from the recent high of US$ 8,698. This will be the first point of resistance going forward, with secondary resistance at US$ 9,012 as this is the upper end of the recent channel. Support has been found on the recent high of US$ 8,115 and this will be significant as the recent low has closed below the support level, creating a wave overlap. From a purist point of view this would suggest that we could be entering into a consolidation formation (it could be more) with the potential to test the lower channel support at US$ 7,718.

This would be supported by the bearish cross in the stochastic. The corrective phase in the Supramax index continues with price action remaining in the support zone with US$ 6,680 being the next key level. A close below here could push the index as low as US$ 5,797. Momentum continues to remain in an oversold environment with technical resistance at US$ 7,553 and US$ 8,406. At this point any upward move is likely to fail as we are below previous market lows and more likely to create selling opportunities into any upward move. March futures remain range bound between US$ 7,705 and US$ 7,250. A directional breakout is now needed and should set the next technical directional move.

The stochastic is currently overbought and this would suggest that there is a higher probability of it breaking to the downside at this point. A close below US$ 7,510 would be below the recent low and increase the probability of the US$ 7,250 support being tested. Cal 18 futures remain bullish with the stochastic crossing to the buy side once again on the weekly chart. However higher highs are not being replicated by the stochastic, creating a bearish divergence and implying a weakening momentum. We have now entered a resistance zone between US$ 7,396 and US$ 7,850. A rejection of this resistance would suggest a corrective phase should be entered.

However, a close above this zone would imply further upside momentum and override the bearish divergence. Support can be found at US$ 8,310 which is the weekly pivot and below the most recent low on the daily chart. A close below this level would probably mean a corrective move to US$ 8,110. The daily stochastic is now turning bearish bringing more emphasis to the US$ 8,310 support.

Source: Freight Investor Services (FIS)

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