Emerging Stocks to Drop on Commodities Risk: Technical Analysis

The Continuous Commodity Futures Price Index?€™s drop below key Fibonacci support ?€œpoints to additional downside risk,?€ Mary Ann Bartels, New York-based head of U.S. technical and market analysis at Bank of America, wrote in a Dec. 19 note. Emerging markets may be ?€œnegatively impacted by the break in commodities,?€ she said.

The commodities index of 17 raw materials rose 0.4 percent to 549.98 on Dec. 19, paring this year?€™s slump to 13 percent. The measure is testing the 38.2 percent retracement near 550 of a rally between December 2008 and April 2011, after falling below the ?€œuptrend support?€ near 570, Bartels said. The risk is for a steeper decline toward the 50 percent and 61.8 retracements near the 507 and 463 levels, she said.

Speculators have reduced bets on commodities to a 31-month low on concern that global economic growth is slowing. Money managers cut combined net-long positions across 18 U.S. futures and options by 9.6 percent to 532,521 contracts in the week ended Dec. 13, Commodity Futures Trading Commission data show.

Funds are less bullish after Moody?€™s Investors Service said it is reviewing Europe?€™s ratings and the International Monetary Fund said the region?€™s fiscal crisis is ?€œescalating.?€ Europe accounts for 19 percent of global copper demand and consumes about one in six barrels of the world?€™s oil.

Net Outflows

The MSCI Emerging Markets Index has tumbled 23 percent this year as investors withdrew cash amid concern slowing global growth will curb demand from exports. Developing-nation equity funds posted outflows of $41.2 billion in 2011, the worst year ever after 2008, Citigroup Inc. strategists led by Geoffrey Dennis wrote in a Dec. 19 report. Shares in the gauge trade at 9.8 times estimated earnings.

Developing nations are among the world?€™s biggest exporters of commodities. Brazil is the second-largest seller of soy and iron ore, while India is the second-biggest exporter of cotton.

Cooling expansion in emerging markets will spur further declines for raw materials, according to Michael Aronstein, president of New York-based Marketfield Asset Management LLC, who said in early May that commodities were entering a multiyear bear market.

Technical analysts look at price charts to forecast resistance levels, or ceilings restricting further price increases, and support levels, or floors limiting declines. Fibonacci ratios are based on the sequence pioneered by 13th century mathematician Leonardo Pisano and used to determine highs and lows for prices and predict direction. They include 23.6, 38.2, 50, 61.8 and 76.4 percent moves.

?€œThe biggest risk for 2012, in our view, is a continued decline in emerging markets, particularly Brazil and India,?€ Bartels said.

--Allen Wan in Shanghai. With assistance from Joe Richter. Editors: Richard Frost, Darren Boey

To contact the Bloomberg News staff for this story: Allen Wan at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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