Commodity markets responded strongly on Thursday to news that the HSBC China Purchasing Managers Index fell to 48.1 in March from 49.6 in February. The decline in the Index implies that a recovery in the growth rate of China’s economy will not happen any time soon.
Traders assumed that China’s purchase of a wide variety of commodities will slow significantly. Lower demand for commodities quickly triggered price weakness including technical breakdowns through key support levels by a wide variety of commodities and related equities and exchange traded funds including the DB Commodities Tracking Index Fund . Other commodity related Exchange Traded Notes and Funds that broke technical support levels and established short-term downtrends included the Market Vectors Coal ETF , iPath DJ AIG Nickel ETN , ETFC Physical Palladium Shares and Energy Select Sector SPDRs .
Historically, commodity prices and related equities and exchange traded funds have recorded gains from February to May. Recent technical action shows that seasonal influences are not working this year, at least not yet. Caution is advised.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. Daily reports are available at www.timingthemarket.ca/. He is also a research analyst for Horizons Investment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management.