Technical Analysis: Commodity prices extend losses

8th Jul 2009 12:52

The rally in commodity prices over the last 4 months appears to have run its course with a number of important commodity indices starting to exhibit increased weakness. This weakness has translated across to equity markets on both sides of the Atlantic as both the FTSE100 and S&P500 have either broken key support levels, or on the verge of doing so. The LMEX Metals Index, which has been in a steady uptrend since the end of February is starting to show signs of breaking lower, closing below its trend line support on Tuesday at 2,368.7. This breakdown in commodity prices will in all likelihood, prove to be a drag on the mining sector, as well as global stock markets in general. The UK mining sector has already dropped 20% from its June highs of 16,374 with the likelihood it will drop further, especially if it is able to break below its May lows of 12,790. Across the pond, the Reuters CRB has also started to show significant signs of weakness as well, testing its own trend line support around 235.90. A break and close below this level will add impetus to the down move and in all likelihood drag equity markets lower as well. Any continued decline in commodity prices as well as the oil price will feed through into mining stocks and we have seen evidence of this over the course of the last week. Anglo American - after a volatile few weeks Anglo has started to edge lower, breaking below its long term trend line from its March lows yesterday. A break of its June lows at 1,540p would add further downside pressure, and target the May lows at 1,400p. BHP Billiton - currently finding support around its April lows around 1,290p. A break and close below this key level could signal further weakness towards the March lows around 1,000p.Lonmin - has been one of the biggest fallers of the mining stocks recently, it has broken below its May lows around 1,100p, and while below this support, the risk of a test of the March lows at 880p is a real possibility. Rio Tinto - the support around the 1,990/2,000p level gave way on Monday and has tested longer term trend line support around 1,870p. With declining momentum a break below this line could target the April lows around 1,750p. Vedanta Resources - another stock which has declined significantly off its highs to the turn of around 33%. The break of the 1,500p level in June proved conclusive and the downside pressure remains strong here. There is some support around 1,250p, but the long term potential still remains for a test down to the May lows at 1,165p, while below 1,400p. Xstrata - despite a number of attempts to recover above 705p the bias remains to the downside, and support at 562p. There is also a minor resistance at 630p, which needs to hold to keep the pressure on the downside.The break of support on the LMEX index is the first indication of a breakdown in support in base metal prices across the board. A subsequent break of support on the Reuters CRB index will reinforce the downside pressure, and in turn put continued pressure on indices across the globe.For periodic TA updates follow me on TwitterAlso read my Investors Guide to Technical Analysis and Level 2