30-03-2018

Dry Bulk FFA: Capesize C7 Index Bearish

Highlights:
The C7 Index remains technically bearish, however the 21 period RSI at 24 is oversold whilst on a 5th wave down suggesting we have the potential to reach exhaustion point soon.

Potential volatility ahead for the April C7 as it looks to test the long-term trend support. If support holds then it should attract technical buyers to the market. If support is broken it need to act as a proven resistance to avoid a market whipsaw.

Elliott wave analysis would suggest the Q2 futures are in a leg 4 corrective phase.

Technically the C7 Q2 is starting to look over extended, however until the shorter period EMA’s are back above the 55 period MA the technical must be considered as corrective and not bullish.

The Cal 19 futures are currently on Leg 4 of leg 3. This means the longer term trend should be considered as bullish with the near term trend in a corrective phase.

Capesize C7 Index Daily

Source: Bloomberg

Resistance – 7.13, 7.448, 7.776
Support – 5.63, 5.395, 4.665

Technically the C7 index remains in a bear trend as it continues to make lower highs and lower lows, whilst remaining below its medium and longer term moving averages.

In terms of the seasonality March has proved to be a bad month for the C7 which is down around -20% compared to previous years. The 3-year average is + 14.37% with the 5-year average at + 12.70%. April has a 3-year average of + 23.69% and a 5-year average of + 7.18%.

The retracement has now produced 5 waves down which based on the Elliot wave theory would suggest the downside move could soon reach exhaustion point. This is supported by the 21 period RSI which at 24 is now in oversold territory, however this is not a buy signal in its own right, but a warning that downside momentum is becoming overextended.

Technical support is between USD 5.63 – USD 4.665, from an Elliot wave perspective if tested the USD 4.665 level would be expected to hold, as this wave would then be equal in length to the wave 3.

Near term technical resistance is between USD 7.13 – USD 7.766.

C7 April 18 Weekly 1 Month Rolling

Source: Bloomberg

Resistance – 8.408, 8.911, 9.248
Support – 8.102, 7.932, 7.451

Due to the lack of data on the individual month we must look at the rolling from month future, as this gives us a clearer perspective on the market trends.

Clearly the April futures are in a corrective phase with the rolling contract off 20% from its highs. However, we are now approaching a long-term trend support that has been in place since July 2017; from a technical point of view, price either needs to reject the trend which could attract technical buyers to the market or break the trend and act as a resistance point to attract technical sellers.

The danger of the trend is if it breaks but does not hold as resistance, meaning new shorts would look to exit immediately, creating a more volatile situation. The RSI is at 34, with 2 Fibonacci supports and a trend support making this a dangerous area for fresh market shorts.

Upside moves that trade above the USD 8.408 resistance would create a new high on the daily chart and suggest buyers are growing in confidence. However, this would be below the MA’s keeping the longer term trend in bearish territory.

C7 Q2 18 Daily

Source: Bloomberg

Resistance – 8.797, 9.197, 9.350
Support – 8.347, 8.157, 8.099
The near-term trend in the Q2 C7 is corrective and making lower highs and lower lows. With the 8 and 21 period EMA’s below the 55 period MA. However, there is a long-term trend support at USD 8.157.

The RSI is now at 30 and nearing an area where it would be regarded as technically oversold, not a buy signal it does warn that downside momentum has the potential to slow down, we also see the Fibonacci 50% retracement support at USD 8.347, which is a logical area of support for a leg 4 corrective wave.

Although the market is corrective, Elliott wave analysis would indicate that this is a corrective phase within a longer-term bull trend. Upside moves that close above the USD 8.797 resistance would strengthen the bullish argument. However, until the shorter period EMA’s are above the 55 period MA the Q2 futures would still be regarded as being in a corrective phase from a technical perspective.

C7 Cal 19 Daily

Source: Bloomberg

Resistance – 9.597, 9.664, 9.703
Support – 9.295, 9.043, 8.839, 8.635

The Cal 19 futures give us a clearer view of the longer-term trend, and more importantly the longer-term Elliott wave count.

Based on our Elliott wave analysis is would appear that we are currently on a wave 4 corrective phase. Historically wave 4’s is a profit taking wave, and generally are less aggressive than Leg 2 corrections. This would suggest a near term target zone for the current wave between USD 9.295 and USD 9.043 (23.6% – 38.2%) as wave 2 corrected 50%. Upside moves that trade above the USD 9.597 resistance would create a new market high and suggest that we have seen a leg 4 completion and entered the 5th wave of leg 3.

Technically bullish but in a corrective phase.

Source: FIS

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