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How Commodity Charts Are Reacting (or Not) to China Currency News

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The China story is important because it either helps inspire charts, or it inspires volatility, causing upgaps that only lead to downside reversals.

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Nucor Corporation (NUE), also in the steel sector, has a suspect-looking chart. Can it rally to 43.5 - 44 from 41, or 8% to 10%? Possibly. Whether or not it can get through that level is another thing. If it breaks 40, down to 39, it's going to be a dicey situation for Nucor. So, that's another suspect, discounting chart mechanism for what may be considered the start of another bull move triggered by the China news.

Cliffs Natural Resources Inc. (CLF) had some big swings as of late. But as long as the 200-day holds any weakness, which it has done so far, it could be an indication that something is going on that could drive it higher. Right now it has a sharply declining 50-day moving average at 59.48, which it could test on a reaction rally to the China news.

But if these commodities do gap up, can we afford to chase them? Cliffs has a better looking chart than the previous ones, but it, too, looks like it has limited upside.

Silver

The chart on silver is more compelling than copper and steel, as the iShares Silver Trust (SLV) is still trying to make new highs. The SLV looks strong, with rising lows and higher highs. If it can take out 20, then it may have some momentum on the upside, and the gold-silver ratio will start to move in favor of silver -- that is, it will narrow.

If that happens, we must seriously consider that the China news is being embraced by the commodity sector, and silver is the beneficiary of that even if copper doesn't look so hot.

Pan American Silver Corp (PAAS) is very volatile. I got out of it, as the market was buying gold rather than silver in its flight to safety. But right now, with silver appearing to be back on the upside, we'll have to see if Pan American can get through the 28.5 area to the top of the channel at 32.50 or so. That could be a good move.

Australia

If China is coming back strong, or perceived to be rekindled in a big way, you'd think Australia would be one of the first places to rocket because Australia sells so much into China.

The iShares MSCI Australia Index (EWA) doesn't look that bad, though needs to do some work. It has some serious resistance between 22 and 24, which we need to watch closely as the Australian market responds to the China news.

BHP Billiton Ltd. (BHP), a representative of this market, too, has strong resistance at the 50-day at 69.5 and then at 70.75 to 71 that I'll be watching.

Aluminum, Fertilizer, Heavy Equipment, Materials

Alcoa, Inc. (AA), representing the aluminum side of things, is hardly a picture where anyone is buying this as a discounting mechanism for China. This is one sorry-looking chart, consolidating under the neckline for yet another breakdown at 8 or 9, and, of course, the next round of earnings is already approaching, due to come out July 12.

Potash Corp. of Saskatchewan, Inc. (POT), procurer of fertilizer, is hardly the kind of chart that's inspiring, either. It needs to get over the 106-106.50 area.

Bucyrus International Inc.
(BUCY), a company that manufactures equipment, is impacted by China since China needs its product. This is another uninspiring picture, with a big distribution top, and it had better rally through the declining 50-day at 57.80 and 200-day at 51 and change, which would be a 13% -14% range. It looks like it has a bearish consolidation and if it can't get over 55, it's actually telling us that it has another down leg off the distribution top.

Finally, the Materials Select Sector ETF (XLB) has been in a top or trading range between 29.30 and 35. A break of 32 could be an indication that some dynamic things are happening as a result of the Chinese decision on the currency.

So, the China story is an important one, either because it helps inspire some of these charts, or because it inspires volatility, causing upgaps that only lead to downside reversals. We'll certainly know soon.

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No positions in stocks mentioned.
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