A Market Rebound, But For How Long?

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Includes: DIA, FXI, QQQ, SPY, USO
by: MetalMiner

Original post

By Raul de Frutos

Following a global market slump and selloff to begin the year, last week markets were still volatile but, at the same time, more stable.

Oil prices, and the Chinese and US stock markets managed to finish the week up. A well-deserved finish after the nose-dive we saw in previous two weeks. Now that investors' eyes are on China, global markets seem more interconnected than ever. When China sniffs, oil prices and US equities get a cold. When one of them rises, the others follow.

A Market Rebound?

Thursday and Friday brought significant gains. Oil prices managed to rise back above $30. Fresh stimulus measures by major central banks helped bring some confidence of improving demand for the important commodity after US inventory data was released Thursday showed that stockpiles of crude and refined products increased in the second week.

Crude oil bounces after sharp declines. MetalMiner analysis of @StockCharts.com data.

Although a 14% increase in just two days seems like a lot, it's not. The rise comes after a 42% decline over the past three months. We saw price rallies back in March and August only to then see prices fall back down. So far, the recent rally is being driven by investors hunting for bargains. Oil prices could continue to rally in the weeks ahead, as markets need some time to digest the latest declines, but there is no reason to expect a solid trend shift.

Similarly, stock markets finally made some effort to buck the falling trend, too.

Shanghai Composite Index bouncing off support levels. Source: MetalMiner analysis of @StockCharts.com data.

In China, the Shanghai Composite Index is hovering near its August lows. That's a big test for the market. A short-term rally from this level seems possible, but it's yet to be seen if the index will remain above this level for long.

The S&P 500 bounces off support levels. Source: MetalMiner analysis of @StockCharts.com data.

Not incidentally, here in the US the S&P 500 index is also testing its August lows. A short-term bounce is something reasonable to expect after the previous sharp declines and after US PMI came in above market expectations at 52.7 in January from 51.2 in the previous month.

Whether this bounce is sustainable, of course, is yet to be seen but we remain very suspicious about it.

What This Means for Metal Buyers

Global markets remain linked and taking a breath after sharp declines over the first two weeks of January. So far, this bounce is nothing to get excited about. We haven't seen a significant shift in market sentiment yet. For producers or for stock buyers, risk remains high.

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