Well first, you already know the Aussie Dollar has plunged against the US Dollar since mid-July. But you might be surprised to know it-s also declined against all the other currencies of the G10. This is because it is a commodity-related currency. The sell-off in the commodities market as well as the decline of the local equity markets have been part of the sharp pull-back that began in July.

The other driver has been interest rates. The RBA cut rates in September and October by a combined 125 basis points. These rate cuts decrease the upside potential of the Aussie. The currency was strong in the last few years because of the interest rate spread and of course, booming commodity prices.

First, take a look at a weekly chart below. The beginning point of the recent multi-year rally was in 2001 (point A on the chart). At this time the AUD/USD currency pair was trading around 0.51. It rose until 0.9849 in July this year. The pair nearly doubled in seven years.

The trend was so strong it overcame all resistance. The first main resistance to this long-term bullish trend was 0.80 (points B, C and D). That level became a new support level (points E and F) once it was broken through. The recent strong bearish move easily cleared this level. It has now found new support around 0.6350 (point G), which was a previous low posted in 2003 (point H).

In terms of percentages, the fall is impressive. Between the closing price of July 15th, which is the historical high price, and the closing low posted last Friday, the Aussie lost more a third of its value against the USD. It-s a decline of exactly 34.3% in less than 3 months (between points A and B on the daily chart). That is exceptionally rare on the FX markets.

As a result, the technical indicators have moved down into deeply oversold territory. However the recent (temporary?) bottom and the bounce back initiated this week argue for a further rebound.

The 14-day Relative Strength Index (RSI) has just triggered a bullish signal as it curved upward and left the oversold area by crossing above it signal line. It also shows a bullish divergence. A bullish divergence occurs when the market price is making a new low but the RSI is failing to do the same: the RSI does not confirm the new low. This divergence is an indication of an impending reversal.

This bullish divergence is confirmed by another oscillator with longer-term parameters, the 100-day Commodity Channel Index (CCI). Other indicators show that some further positive price action is likely.

In this scenario, a significant correction of the recent decline is expected. The Fibonacci retracement levels of the 3-month plunge give us the next targets for the coming rebound. The levels of 0.72 and 0.77 are consequently the objective prices as they correspond to the first two ratios (23.6% and 38.2%).

Whether the rally in the Aussie signals a new appetite for global risk taking remains to be seen. In the past five years, foreign investors have been fond of borrowing in dollars and yen to buy Australia-s currency and its commodity stocks. With the prospects of a global recession in 2009, this carry trade may not recover its previous popularity.

That should make for much more volatility in individual Aussie resource shares. These shares will now be valued on the basis of their individual prospects and the forecasts for commodity prices in general. You can expect a divergence in resource shares between those that went up strictly because of a rising market, and those that have good projects that will generate real earnings in the next year.

As always, this volatility is excellent for traders. And as chartists, we believe the fundamental value in excellent resource companies will show up on the charts too. Our momentum indicators are designed to identify these stocks once their moves begin. It won-t be the whole market. But it doesn-t have to be to still be lucrative.

Gabriel Andre
for The Daily Reckoning Australia

• An Oil Price Correction is on the Horizon, When and Where
• CRB Index Correction Likely to Go Further
• Profiting From the Copper Indecision
• Corn Prices on the Rebound
• How to Trade Gold Shares

Less than one month later, the price has cleared the long-term support line on the downside (that goes through points A and B on the chart). As a result, the bearish sentiment strengthens and will probably drive the price even lower in the coming weeks. The price closed at $6,860 a tonne 2 days ago on the London Metal Exchange (LME).

Click to Enlarge

What is going on?

Copper has fallen 22 percent from the peak of $8,775 posted on June 30, as increasing stockpiles signalled weaker demand. Imports of copper and copper products by China fell 4% in August compared with July.

Another element that has an impact globally on commodities markets is the recovery of the US Dollar. Remember that despite the exchange being based in London, copper is priced in US Dollars. A rebound of the Greenback therefore reduces the dollar-priced investments.

The price had moved within a long-term indecision triangle pattern. The basis line of this triangle was the long-term support line that backs the bullish trend started in late 2003. It had been tested and validated in February and December 2007 (points A and B on the chart) where the price bounced back strongly.

The upside of the indecision triangle pattern was the resistance line that goes through the highs posted in May 2006, and in March and April this year. This resistance zone was set around $US 8,900.

The last retracement level (61.8%) of the sharp bullish trend occurred between last December and last March (between points B and D). This had been the opportunity for a small rebound (point H) but it failed to cross above the 38.2% level (point K).

Since the beginning of this month, both the 61.8% level and the long-term support have been broken on the downside. This means the negative trend still goes on.

The MACD has just triggered a new bearish signal, and the Momentum indicator and the RSI are also negatively oriented. In this bearish scenario the next important target is the level of the previous long-term low which is the low posted in December last year (point B), around $6,300.

Gabriel Andre
for The Daily Reckoning Australia

• Macmahon Holdings Limited (ASX:MAH) Near a 52 Week High
• The Aussie Dollar as a Measure of Global Risk Appetite
• Corn Prices on the Rebound
• How to Trade Gold Shares
• An Oil Price Correction is on the Horizon, When and Where

However prices have been falling back for roughly 6 months, and the closing price last Friday has been posted at $7.51. A good overview of the fundamentals of this volatile market is essential before analysing the technical aspects.

First, the global demand, because of the world population growth, is easily predictable. Those past few years, it has moved between 615 and 625 million tonnes per year.

On the offer side, 20% of the world production is put on the market when 80% is domestically consumed. The main producers and exporters are the US, Canada, Australia, the EU, the ex-USSR area and Argentina.

Like on the corn market that we studied recently (Money Morning of August 20), the two main drivers of the offer side are the plantations and the weather conditions.

Last year, many farmers in the US changed wheat plants to corn (at this time producing corn was more profitable thanks to the bio-fuels rising demand) and the weather conditions were really terrible worldwide (drought in Australia, heavy rains in Europe and Russia, cold wave in the US and Canada). The correlation between weather and prices on the wheat market is really strong.

As a result the global stocks decreased massively during the past year. The current level of inventories is the lowest in the last 60 years in the US, the lowest in the last 30 years globally!!

However, the recent decline of the wheat prices (-16.8% since August 21) is now explained by current economic circumstances. First the rise of the US Dollar is a brake for the non-US importers. As the wheat is sold in US Dollars, a stronger Greenback leads to higher prices for the rest of the world.

The other reason is that several exporting countries have just eased restrictions that they had decided a few months ago when the food inflation and alimentary crisis was peaking!

Of course, last but not least, the speculation on this volatile market (therefore where there are a lot of opportunities to make money) is a key factor that strengthens the trends in place.

What to expect now? Two contrarian forces are in place. On one hand the momentum and oscillator indicators are bearish. Both the MACD and the CCI (Commodity Channel Index) have triggered negative signals in late August. There are no oversold conditions therefore a further move on the downside might be possible.

Click to Enlarge

On the other hand, the price action reached last Friday an important area of support. It corresponds to both the medium-term support line (that goes through points C, D and now E) and a long-term support line that has been a previous resistance in 2003 and 2004. This level of $7.50 has indeed been a previous high; it could be now the new low.

That's why a short-term rebound is expected during the next few sessions. A retracement of half of the recent decline (therefore towards a target of $8.25) is likely.

Good Investing,

Gabriel

• Corn Prices on the Rebound
• Farmers Say ‘Rain, Rain Go Away’ Throughout the United States
• Australian Dairy Prices Up Due to Grain Prices
• Profiting From the Copper Indecision
• The Aussie Dollar as a Measure of Global Risk Appetite

The stock climbed from less than $0.10 in June 2001 to $0.97 in February 2007 at a regular pace. However it really took off in early May 2007 as it was trading around $0.80, to reach twice the level of $2 a few months later, in November 2007. It's a 150% rise (between point A and point b on the chart).

Click for a larger image

The stock has corrected this large increase and has been trading since within a consolidation phase. The first retracement move drove the price until the 50% Fibonacci ratio (point C) and towards the 61.8% ratio one month later (point D). The fact that the price action eventually bounced back on this level means that the outlook is still positive on the long-term, and that new attempts to test the historical highs may be possible.

Recently, on August 13 and 19, two lows have been posted on the long- term support line (through points A, D and E). As a result, the price rebounded and should test now the long-term resistance line (through points B, F and G). The trading envelope is narrowing.

The MACD has triggered a bullish signal as it curved upward and crossed above its signal line. Other oscillators confirm this therefore a further move on the upside is likely.

An interesting complement to the MACD is the TRIX indicator. TRIX displays the percent rate-of-change of a triple exponentially smoothed moving average of the security's closing price. This triple exponential smoothing is designed to filter out "insignificant" cycles.

Here the TRIX changes direction and crosses above its signal line. It confirms the MACD indication. The stochastic oscillator is also positive but shows that extreme levels could soon be reached. The theory behind is that in an upward-trending market, prices tend to close near their high.

Therefore the level of $2, the historical high price, will be probably a strong resistance to the current bullish price action. Today the stock is trading at $1.825. A jump to $2 is a 9.6% further rise. At this level the stock would be probably overbought on the short-term so a pull-back would be expected.

The stock would need to clear this resistance and cross above $2 to get new fresh bullish momentum. On the downside, the main support line is set around $1.55.

Good Investing,

Gabriel Andre
for The Daily Reckoning Australia

• Profiting From the Copper Indecision
• How to Trade Gold Shares
• The Aussie Dollar as a Measure of Global Risk Appetite
• An Oil Price Correction is on the Horizon, When and Where
• Platinum Ready for New Bull Leg

Corn may be one of those opportunities. In our last update on corn, on July 10, we were betting that $6.50 would be the main target but that a breakdown of the 100-day moving average would give some further bearish momentum. This is what happened, as the price action posted a low at $5.04 last week. It has however already slightly rebounded. Technical indicators show that the current rebound should drive the prices higher.

Corn prices yesterday fell recently to the lowest level this year after the US Department of Agriculture revealed that farmers were able to boost the country's corn crop in spite of the damage generated earlier in the season by the worst flooding in 15 years.

The USDA forecast the 2008-09 season would see the second largest corn crop on record, triggering further selling of agriculture commodities futures. That's why the prices declined from a high of $7.99 a bushel last June to the recent low at $5.04, which is a 37%-fall. This cooled down the concerns about global food inflation.

Nevertheless, food prices are still 44 per cent higher than last year and almost double the level of 2006.

Yields and harvests were expected, thanks to new plantations in the US, to increase significantly the offer, driven by food demand and bio-fuel consumption. However price will remain sensitive to weather conditions that may affect the expected production.

Click for a larger version

Prices countertrends are then likely. Technical indicators help us to identify them.

The prices have already retraced 23.6% of the bearish trend initiated in late June (between points A and B on the chart). They should go higher. MACD has triggered a bullish signal when it crossed its above signal line, as well as the RSI that indicates that an obvious oversold configuration was reached. The price oscillator also shows that volume is building up on the short-term. Consequently a momentum is building up too on the upside.

The main target is therefore likely to be the 50% Fibonacci retracement. Indeed, it also corresponds to the 100-day moving average, around the level of $6.50. It would become a solid resistance to this rebound.

Gabriel Andre
for The Daily Reckoning Australia

• Wheat Prices Look Set for a Move Up
• Aquaculture: Soybeans and Corn Under Water
• CRB Index Correction Likely to Go Further
• Profiting From the Copper Indecision
• Farmers Feel Consumers Blame Them for High Food Costs

But our focus today is oil itself. That’s where the market is focusing. Oil’s what equity traders are looking at.

The big question: is this short term selling or a medium-term switch in trend? I mean, in early June, the oil price slipped from US$135 to US$123. Then it bounced back again.

Really, there are a lot of questions over the oil price at the moment. Does this correction mean we won’t reach the levels of $200 or even $250 that a few analysts have forecasted? Or is this a consolidation phase before renewed strength?

We can’t answer all of those for you. Some of them depend on the future. But we can definitely clarify the charts for you…and why they’re more important today than ever.

Obviously nothing has really changed on the fundamentals side. Master Card recently announced that in June US petrol purchases decreased by 3.9%. And that’s not a new trend. US crude demand has been lower all this year.

But the funny thing is, fundamentals aren’t moving the price any more – in either direction. The ebb and flow of military activity in Nigeria, for example.

Normally when militants offload a few rounds, the oil market perks up. Not today.

That doesn’t grab you? Well, US crude inventories have decreased by 6 million barrels this yea. That should have knocked oil prices up a notch.

And that is what makes this oil price move an example of trading flows. In this scenario, anything can happen. Speculation-driven moves are basically volatile, unpredictable, often wild, and without any apparent logic.

Except the logic of making profit of course! That’s why the technical analysis is more helpful than usual here. It maps out the playing field through the eyes of a trader. You can see what the pros see. So hurry up and take a look.

The first support traders will look at is around $121/122. That’s the first target.

The key moment in oil was when the price action crossed below that medium-term support line. It has been tested and validated several times (points A, B, C and D). The rally drove the prices from $85 to $148, a rise of 74% in 5 months and a half only. It’s perfectly understandable now that oil should fall just as quickly.

So we’re still about seven or eight bucks away from the part where the market finds strength. The other supports are around $111, $98, with a monster at $83. If support at $121 falls, we’ll let you know more about the others. That’s how oil is shaping up.

[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]

Gabriel Andre
for The Daily Reckoning Australia

• An Oil Price Correction is on the Horizon, When and Where
• How to Trade Gold Shares
• Crude Oil Could Hit $200/Barrel
• Wheat Prices Look Set for a Move Up
• Uranium Shares To Show Gains in Face of $120 Oil

An oil shock is undoubtedly here. It may turn out to be "the" oil shock, or it may not. Either way there's a lot you have to take in as an energy investor. Oil is breaking new ground each time it gains. We haven't been here before. Not many analysts understand exactly what is going on.

However, the laws of supply and demand still apply. There are still buyers and sellers. Read on for a clearer view of what you're dealing with. Now may not be the time to go chasing high-priced oil companies, an oil price correction could be on the horizon.

The trend is your friend until it ends.

There could not be a more important maxim of technical analysis. We don't know who said it first, but they were right. Every trend eventually ends. Every bull market corrects.

We're not looking for the end of the overall trend here, but a price consolidation. A minor trend that goes against the major one. Where does this current price explosion cease? And where will the minor trend take us?

In other words, when will oil consolidate, and by how much?

If a broker's report could tell you that, I'd be out of a job. Thankfully, there are some issues that fundamental analysis is hazy on. The chart should provide a bit of wisdom here.

There are three pretty well-defined points of support for oil. Each was established by a previous high. You'll note the long-term support level of US$83 stretches all the way back to 2005. It's the most well-tested, and the strongest buying point if oil comes back that far.

The other two are fair buying targets, although not as bullish as US$83. A level of support at US$110 will be the first place that traders move back into the market. If they get run over by sellers there, watch for a rally at US$98.

As for the when? Well, the answer is: any time now. There has been a common misunderstanding that the oil price should have corrected a long time ago, at US$110 for example. We can't help but disagree. Only now are the technical indicators finally beginning to show some cracks in the trend.

Firstly, oscillators indicate that oil has sailed into overbought waters. The MACD on the chart above is at an all-time high. Watch for it to turn around. That would confirm a turnaround of sentiment in oil.

But here's a little industry secret...traders won't be selling until the MACD line moves below zero. Such a movement tells them that the short-term average has dropped below the long-term average for oil's price. That's the selling signal sellers are waiting for.

We rarely settle for a single indicator though. The MACD gives us a taste of what's yet to come, but we're not full yet.

That brings us to the Ultimate Oscillator. This vital chart, second from the bottom, has often been a great relief to many oscillator traders. It smoothes out the volatility in other oscillating indicators, leaving you with a raw signal that can't be ignored. It tells when other prices indicators are lying.

Consider the bullish trend started in end of March until now. Oil prices recently posted a higher high (on May 21 above $134). But today there's a bearish divergence in the Ultimate. This divergence argues for a coming retracement. It overrides other methods.

Not enough for you? Well, the RSI and Stochastic oscillators also indicate that the prices are overbought.

Broadly speaking, a lot of bearish signals are flashing...or soon will be. The market is truly ready for a healthy oil price correction. You know where the buying points are. Now it's just a matter of time before the correction takes place.

Gabriel Andre
for The Daily Reckoning Australia

• How to Trade Gold Shares
• Profiting From the Copper Indecision
• The Aussie Dollar as a Measure of Global Risk Appetite
• CRB Index Correction Likely to Go Further
• Macmahon Holdings Limited (ASX:MAH) Near a 52 Week High

Gold shares have traded in a large channel since last September. It’s taking both the good and the bad at this stage. On one hand, there are the rising prices of bullion. Gold has moved up to US$930 just this morning. On the other hand, it has suffered from generally choppy share conditions.

The price action of the index illustrates those contrarian forces. The chart is a succession of fast moves in both directions. It’s a rangy market where no clear long-term direction appears.

We’ll see what our indicators think of that…

Between August and November 2007, the index rose by more than 55%. Two other attempts to break above 7,000 level failed. Those historical high points constitute the resistance line of the current trading channel.

The low was posted on April 30 just above 5,100 points, which is support line of the trading channel.

The technical indicators show that mixed signals argue for a further rangy trading price action during the coming weeks. For traders, there’s a lot of potential to pick up some gains.
The 14-day MACD is bullish. This, one of our favourite indicators, fell to a historical low levels at the beginning of May. Then it turned up and then crossed above the 0 line. The underlying index was clearly oversold. It argues for upward momentum in the mid-term.

A moving average crossover agrees. The 10-day MA crossed above the 50-day MA last week. It’s a buy signal for mid-term trend-followers.

The 5-day Stochastic Oscillator, however, respectfully disagrees. But it disagrees on a shorter time-scale. The oscillator says that gold shares have gotten a little hot in the last few days.

The signals may disagree, but the conclusion is clear. There’s money to be made in the medium term according to the charts. But you could perhaps wait for a decent correction before moving in. The next price target is perhaps 5,300 points a 38.2% Fibonacci retracement. Then traders will look to switch back to long positions.

Gabriel Andre
The Daily Reckoning Australia

• Macmahon Holdings Limited (ASX:MAH) Near a 52 Week High
• The Aussie Dollar as a Measure of Global Risk Appetite
• Uranium Shares To Show Gains in Face of $120 Oil
• CRB Index Correction Likely to Go Further
• Crude Oil and the Dow Jones Index…a Close-Up

A more accurate word would be “platinum”.Since its initial burst, platinum eased off the accelerator and dropped back down to the stratosphere. It remains on a bullish trend, however. After the correction, buyers took advantage, and got back into a good fundamental trade.

What correction? Well, platinum got a lot of press while it was rising. Less as it fell. Platinum gave back 20% in March.

Since then, it’s moved again. The reason we like it today? It just broke a key resistance.

Before we discuss the chart, there are two factors at work in the platinum market. Firstly, US$130 oil is making mining it more expensive. Secondly, it’s a precious metal. That scarcity of supply makes it a key alternative for the US currency. We don’t see the European Central Bank cutting rates anytime soon. No European money will be flowing into the greenback. But precious metals stand to see a bit of cash slosh their way.

Above all, the energy crisis in South Africa is still disrupting production.

Now…on the chart, there’s an obvious support line at US$1,830. You can see the double-bottom pattern between March and early May. The surge of buying following this has taken us past resistance of US$2,100. We see the renewed momentum taking platinum further up, at least as far as US$2,281. That’s where the double bottom began to form.

The MACD indicator is also clearly bullish. Platinum was oversold at the beginning of May, when the indicator fell below the zero line. Since then, it crossed back up. It hasn’t become overbought yet, adding weight to the new momentum.

Here’s a new indicator: the On-Balance Volume chart. It calculates a running total of volume. It basically shows whether money is flowing in or out of an asset. An upward sloping line indicates a good in-flow, and an uptrend in price. The OBV chart confirms for you that investors are coming back into platinum in a big way.

Where to from here? Well, it’s a clear sky above US$2,821, so we can only speculate. But if the price moves through US$2,281 (and we expect it to go that far at least), you could see a platinum move all the way to US$2500.

Gabriel Andre
The Daily Reckoning Australia

• Profiting From the Copper Indecision
• Macmahon Holdings Limited (ASX:MAH) Near a 52 Week High
• Corn Prices on the Rebound
• How to Trade Gold Shares
• CRB Index Correction Likely to Go Further

The uranium price from last year reminds us a bit of when Jack tossed those magic beans out the kitchen window. Zip. Pretty soon a massive growth had burst out of nowhere.

But the seeds of Uranium Boom 2007 were sown years ago, back in the ‘90's.

For the entire decade of the 1990s, fossil energy was cheap and accessible and abusable. Crude oil crouched below US$30 until the turn of the millenium. The service station down the road was charging you 67 cents a litre for a tank of petrol. The gas that lights your stove and heats your home was a quarter the price it is now.

With everything was so cheap, who could care less about nuclear power?

Certainly not elected officials. They had little choice. What government would incur the wrath of environmentally conscious citizens while heating oil and gas prices are so low? No-one wanted to swap their nice fat oil cow for a handful of silly magic beans. Especially not magic beans that cause radiation poisoning.

So the beans were discarded on the back lawn. Nuclear infrastructure development stagnated. Europe dropped many of its planned projects. US policymakers wouldn't touch the issue. Gas flared, stovetops bubbled, coalfires raged.

Eventually, those beans sprouted, though. Oil has become five times as expensive since the year 2000. Policy-makers and planners have begun to realise that gas is finite. Coal, the other source of base-load electricity, is now copping flak for carbon emissions. In China these days, 60% of big cities have air quality below acceptable limits. Two billion people are going through rapid industrial development in Asia. How can cities keep the lights on without gas or coal?

Countries have changed their tune in recent years, especially developing nations with massive future energy loads to bear. China plans to take its nuclear energy load from 2% of total power to 8% in the next 15 years. To do that it'll have to build two nuclear reactors per year. India wants to double its own nuclear capacity over the same period.

All this nuclear power is going to need uranium fuel. Last year, investors realised this. So the nuclear beanstalk grew. Uranium prices boomed at exponential rates. It spiked at a price of US$140 per pound. Then it crashed.

Despite the crash, you know that sooner or later, uranium demand is going to fire up again. That's what makes the following uranium shares look especially oversold.

First up, Paladin Energy (ASX:PDN) has fallen a long, long way from its high of last year. From a long-term perspective, this chart is really interesting. This uranium company's share price recently rebounded from a low of AU$4.28 on April 14th. This corresponds exactly with a 61.8% Fibonacci retracement. It also matches up with long-term support established back in 2006.

The stock looks as though it may have taken a beating. But technically speaking, that beating may be overdone. Uranium has only fallen a little over 50% in the same period. With this new support, many investors will see this as an opportunity to buy back into uranium shares. It could grant Paladin a new bullish momentum.

Energy Resources of Australia (ASX:ERA) is another uranium miner we like the look of at the moment. Technically, it's also strong, but for different reasons than Paladin.

Since August 17th 2007, the share price has gained 38%. You can see this bullish trend clearly in the brown line on the bottom half of the graph above. The stock is currently trading just above the support line, with a positive outlook on the near-term. Traders have rarely been brave enough to venture below that brown trend line.

We don't think they will now. But also, the MACD indicator on the top half of the graph shows an "upward cross". The full brown line has crossed the dotted black line. This is a bullish signal for momentum traders. It's confirmed by action in moving averages; the 10-day moving average is about to cross above the 20-day moving average.

That adds to the argument for ERA's shares. The stock is simultaneously finding support, and getting two green lights for a turnaround. Now could be the time that these two uranium shares find their bottoms before a long-term bull market.

Gabriel Andre
The Daily Reckoning Australia

• Thorium as a Nuclear Fuel
• How to Trade Gold Shares
• Macmahon Holdings Limited (ASX:MAH) Near a 52 Week High
• CRB Index Correction Likely to Go Further
• Trading Airline Stocks in an Energy Bull Market