NATURAL GAS

Since my last update on Natural Gas price moved higher and reached the important resistance area between 2.75 and 2.80. Earlier analysis discussed the possibility of a head & shoulder bottom reversal.

https://techcharts.wordpress.com/2012/06/18/natural-gas-3/

Natural gas is now closer to a decisive price action. A breakout above 2.75-2.80 will confirm the head and shoulder bottom and target 4.0 levels. It is important to note that 3 different technical resistances are overlapping at this resistance area. Year-long downward trend line, 200 day moving average and the neckline of the inverted head & shoulder pattern. A breakout should be significant. Failure to break above 2.75-2.80 area will pull the price back to 2.5 levels and result in more sideways consolidation below 2.75.

 

MSCI EMERGING MARKETS

High volatility in May is followed by a calm period in June. After the sharp sell-off in almost all asset classes during May we are now seeing short-term rebounds. Even though some commodities, equity indices and currency pairs are resuming their slide. MSCI Emerging Markets is a widely followed index that found support in the beginning of June. Index rebounded from an extremely critical level. MSCI EM formed a 3 year-long head and shoulder top reversal with the neckline standing at 890 levels. Head and shoulder top hasn’t been confirmed yet. For confirmation we need to see a decisive “weekly” close below 890 levels. Given the symmetry between the left and the right shoulders on the H&S top, there is a high chance of this chart pattern being a classical head & shoulder top.

A decisive break below 890 levels will target 650 levels in the medium/long-term. Head and shoulder tops or bottoms do fail. A failure will occur only if the index breaches above the peak of the right shoulder at 1,070 levels. For now we continue to follow MSCI EM index with a bearish outlook and watch this major chart pattern as a Head & Shoulder top.

U.S. HOUSING STARTS & U.S. BUILDING PERMITS

Housing starts in U.S. fell 4.8% in May. Total starts dropped 4.8 percent to a 708,000 annual pace in May from a revised 744,000 rate in the prior month that was the highest since October 2008, today’s report showed. Building permits increased 7.9 percent to a 780,000 annual rate, reflecting gains in single-family and multifamily homes.

How strong are these numbers and what has it been like historically? I’m posting two historical charts on both housing starts and building permits.

Since 1960s housing starts have been cyclical between 2,270,000 and 850,000 units. Until the latest collapse (2006-2009) there has been 4 consecutive troughs and peaks. 1966,1975, 1982 and 1991 were depressed housing market years with housing starts reaching 850K level and 1972,1978, 1984 and 2006 were strong housing market years reaching 2,270,000 level. What is different in the latest housing collapse (2006-now)? First, the market overshoot the 850K number, second it has taken longer to rebound when compared with the previous V-shaped reversals/recoveries.

It is true that building permits are rising and this is definitely positive. However, we should see the housing starts back above 850K threshold to be more optimistic about the U.S. housing market.

 

NATURAL GAS

Natural gas had a strong rebound from 2.2 levels. It recorded +10% gain in one day. Price formed a perfect symmetry after finding support at 2.2 levels, a requirement for a head and shoulder pattern. Now we have symmetrical Left and Right shoulders. Confirmation of the inverted head and shoulder pattern will be a decisive break above 2.75-2.85 area. It is important to note that both the neckline and the long-term 200 day moving average is forming resistance between 2.75 and 2.85. Breakout above this area will be positive for Natural Gas. Keep this chart on your watch list.

SPAIN 10 YEAR YIELDS

Spain meets Croatia tonight for Euro 2012 tournament. Greece had a great victory against Russia. Both teams are probably qualifying for quarter finals. While the news for Spain and Greece is exciting on the Euro cup side, it is not as rosy on the economics side. Yesterday Greece had elections. Results: positive. Market reaction: short-lived optimism. Markets are now focusing on Spanish 10 year govt. yields which is now exceeding 7%. 7 percent was the threshold that forced Greece, Ireland and Portugal to call for sovereign rescues for the first time since the euro’s creation. Likewise this level is extremely critical for Spain.

Uptrend that started in the beginning of 2006 is now accelerating on the upside. Spanish yields bottomed at 3% in the beginning of 2006 and reached 7% over the past 6 years, levels that was not seen since 1997. Charts are telling us that the uptrend is gaining strength. Intermediate term support area is between 5 and 6. Expect yields to move higher and challenge Spain and euro zone further.