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The Commodity Research Bureau Index (CRB) had a massive rally from the 2002 lows to the 2008 highs. Then the index fell over 50%. The 2009-10 rally has now taken the index to the 50% retracement level as well as hitting two key resistance lines at (1) above. Could a rather large “Head & Shoulders” pattern also be at hand?
Speaking of a “Head & Shoulders” pattern….Is one taking place in gasonline? (see post here)
The question, per is the a rally in a bear market is based upon the fibonacci and resistance situaion in the chart above. It has nothing to do with fundamentals. I ended the year with a quiz, the chart was the TIP ETF (see post here). In the answer I ask another question, wondering if TIPS were hinting that inflation shouldn’t be that big of a concern.
Time will tell if this was a rally in a bear market and it might not take too much time with the “Power of the Pattern” looking to be at hand here!
Chris, the Head and Shoulders patterns you propose in the CRB and gasoline charts look more like “single disturbance” or “damped oscillation” patterns to me. Imagine that the price was pulled above the undisturbed path by some force, like irrational exuberance. When released, the price would start a rapid fall, overshooting the undisturbed path, eventually turn upwards at the bottom and approach the undisturbed path asymptotically from below. It is like playing a guitar string submerged in a sea of syrup or other viscous stuff. The undisturbed path would be a line starting at the lowest point in the beginning of the rally (end of 2001 in the CRB chart), and it would cross the rapidly falling price at midpoint. A properly drawn undisturbed path might give better predictions than h&s! Make sense to you?
-R.
The Reuters-Jefferies CRB index gives a 23% weighting to crude oil alone, and 39% to the energy sector. While these weights are arguably proportional to energy’s share in global trade, they make the RJ-CRB too much of an energy index for my taste.
Meanwhile, the previous version of the CRB consisting of 17 equally-weighted components is still available as the CCI (Continuous Commodity Index). And the CCI busted out to a RECORD HIGH last month, sending a very different message than the RJ-CRB.
http://www.mrci.com/client/w-crb.pdf
Underlining the validity of the CCI as a tracking measure, the United Nations Food and Agriculture Organization announced today that its index of 55 food commodities broke out to a record high in December, above the previous June 2008 high.
Perhaps the CCI is printing a huge double top. In any case, it’s the commodity index of choice, I’d suggest.
The mexican restaurant I ate at today in Tucson cut their buffet price form 9.99 to 6.99 with the same spread, if that is any consolation.
Chris, I’ve been long KOL since your post on ACI in November.
The chart still looks good, unlike the metals, but do you think I should be quick to dump on weakness or rather patient with pullbacks instead? Thanks.
Best Regards
JB
Mike…How do you define pain? Me having more kids to send to college?
There could be more pain ahead:(? Sigh.
Mike…Great comments. The CRB index is a basket of 21 different commodities. I agree with all the items you mentioned, per being higher. I just paid college tuition for two daughters in college, yes I feel it! As the chart reflects, the CRB index peaked in 2008, fell over 50% and now has retraced 50% of the huge decline. What happens now will be really important per the prices we pay going forward.
I do not know much about the CRB paper index. I know inflation when I see it. The gas I buy, the produce I purchase, the cost of power I use, the money I pay for tuition,and other daily neccisities of life are all pointing upwards from left to right. And that to me is inflation. You should be feeling it too in the wallet if you live in this country.
Chris, Excellent insight into the commodities space! The sector is definitely overbought in the short term with RSI over 70, but you have given us the BIG picture view which says so much more in combination. Thanks!