Market expert Aaron Lynch explores commodities markets: The start of a new year – maybe the start of a new run.

Welcome to the first Commodities Corner for 2012. In 2011, the European ‘contagion’ (a term that is likely to become as common as ‘GFC’) bred a lot of fear and pessimism in more than equity markets. Globally, index markets were hit with a second wave of sell-offs, although the falls were nowhere near as spectacular as the GFC collapse. But since most markets have not rallied to pre-GFC levels, all drops need to be measured in terms of percentages rather than in straight points.

The Australian economy is so acutely exposed to commodities, specifically the mining and minerals space, that it was interesting to watch 2011 unfold. The major northern hemisphere equity index markets, like those in the United States, the United Kingdom and Germany, have retraced to levels around 75 per cent before falling again.

The Australian market is touted as the stand-out G20 economy. Australia can be proud of its place in terms of inflation, unemployment and government debt. However, this has not translated to an outperforming share market. We’ve followed the same route as the Shanghai exchange, covering 50 per cent of the drops only to double top at that level in 2011, with the tops approximately a year apart. This was the sort of set-up technical traders, and certainly those who use time analysis in their trading, were salivating over. Figure 1 shows the Australian SPI 200 futures index with the set-up described above...

Excerpted from an article originally published in the Jan/Feb 2012 issue of YourTradingEdge magazine. All rights reserved. © Copyright 2012, Your Media Edge Pty Ltd.
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