27-03-2018

Dry Bulk FFA: Capesize Index Still Bearish

The Capesize index remains technically bearish, however the 21 period RSI at 28 is oversold and in an area that has supported the index in some form or other for the last 18 months.

Momentum would suggest that the April futures are oversold. However, the USD 4,500 disparity between the futures and the index is a concern and should cap upside moves unless we see a higher Index. Likewise, as we approach April the futures could come under pressure if the index remains at these levels.

The Q3 futures bounced as expected and has failed at this point to break the 0.618% USD 19,090 resistance suggesting we may have seen completion of leg B.

The Cal 19 futures remain the strongest of the technical and is now on wave 5 of wave 3 with the new high fulfilling the minimum requirement. The stochastic and RSI are both showing bearish divergences warning momentum could be slowing.

Capesize Index Daily

Source: Bloomberg

Resistance – 9,330, 12,651, 13,569
Support – 6,950, 4,675, 2,399

The capsize index remains technically bearish below the 8 and 21 period moving average with the Index continuing to make fresh market lows.

The 21 period RSI at 28 has now entered oversold territory. Not a buy signal, it is a warning that downside momentum has the potential to slow down. We can see on the chart that this area has resulted in some form of a market pullback for the last 18 months.

Fibonacci support remains unchanged with the first technical level at USD 6,950. Resistance starts at 12,651, a close above this level would create a fresh market high and suggest the technical is firming.

A close above USD 9,330 on the weekly candle would be above the high of last week’s candle and would act as an early warning that trending conditions could be changing. Technically we would remain in bear territory, however a close above the high of the low candle often indicates market support.

Capesize April 18 Weekly 1 Month Rolling

Source: Bloomberg

Resistance – 14,848, 15,435, 16,021
Support – 12,909, 12,713, 10,275

We remain on Leg C of the April futures in terms of Elliott wave keeping the technical in a bear phase, below the 8 and 21 period EMA’s.

The stochastic at 8 remains in oversold territory, not a buy signal it does warn that momentum could be slowing down with the potential to base at these levels.

The elephant in the room for the April futures is the index itself, as the futures are trading at a premium of over USD 4,500 to the index. If the index (which has an oversold 21 period RSI) fails to close above the USD 9,330 weekly high, then we could see further downside from the April contracts as it looks for the spread to narrow.

Conversely upside moves in the April futures could be limited at this point until we see upside price action in the Index. As the positive premium would suggest the spread between the two is looking overstretched meaning the futures could find willing sellers at this level.

Technically bearish on Leg C. Upside limited without higher pricing in the Index.

Capesize Q3 18 Daily

Source: Bloomberg

Resistance – 18,070, 19,091, 19476
Support – 17,295, 16,633, 16,275

We highlighted last week that the Q3 futures had produced 5 waves down suggesting that Wave A (the first of tow bearish impulse waves) was nearing completion. And this has been the case. It would now appear that we are on now on wave B (bullish corrective wave) which often find resistance around the 0.618% retracement (USD 19,091). Upside moves that fail at this level would suggest we could be entering Leg C (the second bearish impulse wave).

Intraday the 0.618% USD 19,091 has been tested an held supporting the theory this is a wave B correction.

Downside support remains between USD 17,295 and USD 16,633 with resistance between USD 18,070 and USD 19,476.

Upside moves that trade above USD 20,100 would indicate a bullish trending environment as the market will have made a fresh market high.

Capesize Cal 19 Daily

Source: Bloomberg

Resistance – 18,554, 18,985, 19,415
Support – 17,160, 16,920, 16,590

Last week we highlighted that the Cal 19 futures had the strongest technical footprint and based on our analysis we believed we remained within the longer-term wave 3 phase meaning the could be loess aggressive than those of the nearer term futures. This has been the case with the case with the Cal 19 going on to make new highs.

From an Elliott wave perspective, we have now entered wave 5 of wave 3 giving us revised upside targets between USD 18,554 and USD 19,415. Technical support is between USD 17,160 and USD 16,590. However, a close below USD 17,160 would create a fresh market low and suggest we have entered a longer-term wave 4 correction.

By making a fresh market high, the wave 5 has met its minimum obligation in terms of wave completion. It is worth noting the confluence between the 21 period RSI and the faster period stochastic as both are showing bearish divergence. Not a sell signal it does warn that upside momentum could be slowing making the 61.8% Fibonacci projection target harder to achieve.

Source: Freight Investor Services (FIS)

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