It has been a volatile week in the equity markets once again around the world as risk aversion remains a dominant theme these days. With many reasons from geo-political concerns coming from the ongoing Russia-Ukraine conflict, the Fed and Bank of Canada officials hawkish comments in an effort to combat growing inflation with overtures that additional 50 bps rate hikes (with some murmurings that an even larger 75 bps rate hike may be coming) have really stirred the markets. Couple this with the seemingly never ending Covid lockdown in China has given reason for concern that global economic growth may be negatively impacted. With these factors combined, the markets are concerned if a economic recession may be on the horizon.
In this week’s edition of the Equity Leaders Weekly, we are going to take a look at the High Grade Copper Continuous Contract (HG.F) given China is a major consumer of Copper and the iShares China Large Cap ETF to get a perspective of how the China equity markets have been performing.
Because of its wide variety of applications, investors tend to view action in the copper market as an indicator of economic activity and demand for resources around the world and particularly for China. With the potential impact of continuing COVID lockdowns in China on resource demand, it appears this may be causing a bit of a drag on commodities. Hence let’s take a look at some analysis on the Copper contract.The last time we commented on Copper in the Equity Leaders Weekly was on January 13th when we identified $4.77 was a potential resistance level to watch. In the attached Point and Figure chart of the Copper Contract at a 1% scale, we see that earlier in March, Copper had in fact broken out of its sideways trading range (and previous resistance at $4.77) and marched onto a new leg higher to the $4.91 level. Since then, the drag on the overall commodity spectrum materialized and the Copper Chart has now drifted back into its prior consolidation range, and is now in a downward column of O’s pulling back to the $4.45 area with a negative Double Bottom chart pattern in place. We are at a near term support level now. If support does not hold at $4.45, then the next level of support is at $4.27. To the upside, resistance is at its 3 box reversal at $4.67 and, above that, the previous high of $4.77. With a SMAX score of 8, we see that Copper is still holding onto near term strength against the asset classes. It will be interesting to see going forward if Copper can hold onto its near term support levels and this recent commodity pullback will subside and the Commodity space can re-assert itself.
International Equity as now fallen to the 6th spot in the Asset Class Rankings and has overall been the weaker performing Equity Class for some time now. Since China, in particular, seems to be battling further Lockdowns with the Covid wave they are experiencing, lets take a look at the iShares China Large Cap ETF (FXI) to see how this area of the International Equity space has been performing.The iShares China Large Cap ETF seeks to track the investment results of the FTSE China 50 Index composed of large-capitalization Chinese equities that trade on the Hong Kong Stock Exchange.In the attached Point and Figure chart at a 2% scale, we see that FXI has been in steady decline since its high back in February of 2021 when the shares reached $52.69. Today the shares are at $29.47 losing almost half of its value in a little over a years time and down over 19% year to date. It is quickly approaching a near term support level at $26.87. If it fails to hold here; the next level of support is at the 2016 low of $24.83. Resistance can be found at the 3 box reversal $31.49 and, above that, $34.76. With an SMAX score of 0, the ETF is showing no strength whatsoever against the asset classes.
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