11-04-2018

Dry Bulk FFA: Capesize Index Still Bearish

The Capesize index remains technically bearish as we approach the first of our Fibonacci support levels. Technically we remain bearish however momentum indicators are looking oversold as we approach technical support suggesting we should see some form of relief from the downside pressure soon.

The May futures are technically oversold, however the May – 5TC spread at USD 4,000 is overstretched. Upside moves should be limited if we do not see some form of upward move in the index soon.

The leg B completion highlighted last week has resulted in a strong push down. Technically corrective/bearish, momentum indicators are now in oversold territory suggesting we are due some form of a technical bounce soon.

The Cal 19 futures are now on an Elliott leg 4 correction. Technically a higher high is a bullish signal. However, a leg B is often 3 waves and can create a Bull trap!

Capesize Index Daily

Source: Bloomberg

Resistance – 9,304, 9,687, 11,770
Support – 6,950, 4,675, 2,399
The Capesize index remains in bearish territory having rejected the 8 period EMA’s once again. The RSI remains in oversold territory with the index having moved USD 1,200 since the 23-3-18 as we approach the first of our Fibonacci supports at USD 6,950.

Technical resistance is now at USD 9,304, upside moves above this level would suggest that the technical picture is firming. However, price action needs to be above the 21 period EMA for it to gain upside momentum (USD 9,687), which if achieved would put the 55 period EMA at USD 11,770 as the next logical target.

Technical support remains unchanged between USD 6,950 – USD 2,399 with the first level due to be tested. The oversold momentum indicators would suggest that downside moves could be limited. However, from a technical point of view we need to see new high above the EMA’s to trigger buy signals.

Capesize May 18 Weekly 1 Month Rolling

Source: Bloomberg

Resistance – 12,486, 13,501, 14,020
Support – 10,450, 10,020, 9,769

We highlighted last week that the April futures had limited upside due to the spread with the Index being at USD 4,500. We also highlighted that if the index failed to gain ground last week then the April futures were likely to come under pressure, and this has been the case.

Due to the May futures making fresh contract lows we will look at the May contract via the rolling front month futures. Technically the rolling front month contract (May) is oversold with the recent rollover creating a bullish divergence in the market. Not a buy signal it does warn that downside momentum is weakening.

However, there is still an elephant in the room, he’s smaller, but has not gone away, and that is the spread between the May futures and the 5TC index, which at USD 3,929 and continues to look overstretched. Obviously unlike the April futures the May has more elasticity due to the extra time factor. However, if the index does not hold at these levels then the upside in the May futures should be limited. Technical support starts at USD 10,450, however for the technical to be considered as bullish the rolling contract needs to trade above USD 14,020.

Capesize Q3 18 Daily

Source: Bloomberg

Resistance – 16,647, 17,045, 17,442
Support – 14,930, 14,490, 13,787
Based on price action since the 23-3-18 we can assume that it was a leg B of Elliot wave and it had completed.

The Q3 technical is now firmly in a leg C retracement having broken all its Fibonacci support levels and selling off over USD 3,000. The technical is bearish but momentum indicators (short and medium term) have now entered oversold territory. Not a buy signal it does suggest the downside momentum has the potential to slow down at these levels.

To be considered bullish upside moves need to make a new high (currently USD 18,730).

However, keep an eye on the rolling front month quarter as this has a lower high at USD 17,140. Upside moves above this level could be enough to attract market buyers (rather than short covering or swing buying).

Fibonacci resistance is currently between USD 16,647 – 17,442. Upside moves that reject the resistance zone would suggest downside continuation. However, if we hit the 61.8% retracement USD 17,442 then remember this is making new highs on the rolling contract and could signal that the technical is turning!

Capesize Cal 19 Daily

Source: Bloomberg

Resistance – 16,902, 17,085, 17,267
Support – 16,114, 15,575, 15,035

Last week we highlighted the confluence between the RSI and the stochastic which were both showing bearish divergences. Not a sell signal but a warning that momentum could be slowing down.

We also highlighted that by making a fresh market high the Elliott wave sequence had met its minimum obligation regarding a leg 5 (of 3) completion.

The Cal 19 technical has now entered a leg 4 corrective wave and nearing the 38.2% retracement at USD 16,114. The 8 period EMA has now crossed the 21 period EMA which are starting to cross the 55 period MA. The technical pictures continue to weaken in terms of the Elliott wave cycle, however the momentum stochastic is starting to look oversold in the near term. This does not mean the corrective phase is over, but it does suggest that we could see some form of technical bounce (potentially wave
B) at some point soon.

Upside moves would have to make a new high for the Cal 19 to be considered as bullish, however a note of caution as Leg B’s are often 3 waves (hence the name bull trap) and this is a more major corrective wave, so market buyers should be prepared for this possibility.

Source: Freight Investor Services (FIS)

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