Rubber Heading for Bear Market on Dead Cross: Technical Analysis

Rubber is poised to enter a bear market in the next month as a dead-cross formation signals a further sell-off, according to Trading Central SA.

Futures in Tokyo, the global benchmark, may tumble as much as 14 percent to 242 yen a kilogram ($2,550 a metric ton), said Ludwig Garric, a technical analyst at the Paris-based company, who correctly predicted the rally in soybeans to a record last year. Rubber last traded at that level in November.

“A bearish signal was given by the crossing of the short-term 20-day moving average below the mid-term 50-day moving average,” said Garric. “A rising trend line is broken and a descending channel has formed. The descending 20-day moving average suggests that the commodity still has potential for a further decline.”

The most-active contract fell 17 percent from this year’s peak of 337.8 yen a kilogram reached on Feb. 6 on concerns that increasing stockpiles in China, the biggest buyer, and the debt crisis in Europe will reduce demand for the commodity used for tires. Futures settled at 282 yen on the Tokyo Commodity Exchange yesterday and are down 7.8 percent this year.

“The near-term outlook favors the bear camp with a support level at 242 yen, which may be reached over the next one month,” Garric said.

The decline of a short-term average below a longer-term measure is described as a dead-cross and often interpreted as a sign prices will decline. In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

-- With assistance from Yumi Teso in Bangkok. Editors: Thomas Kutty Abraham, James Poole