Favorite theme: commodities

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The Reuters/Jeffries CRB Index – an index that was first constructed in 1957 and comprises 19 major commodities – has been rising non-stop for the past four weeks and for nine weeks out of the past 14. This surge represents a gain of 30.2% from its low on March 2. But one needs to put this in perspective: the Index fell by 57.7% from its high in early July 2008, and therefore still needs to rise by a further 81.5% to match the previous peak.

I posted an article a week ago entitled “Secular bull in commodities remains intact” and concluded as follows:

“… commodities still seem to be in a supercycle that was only temporarily interrupted by the global economic malaise. As inflation money finds its way into commodities, it is still not too late to purchase these, but only on price corrections that are bound to occur from time to time.”

David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, concurred, saying: “… what we experienced last year was a severe cyclical correction in what is still a secular bull market – you can connect the dots on the chart and see that the CRB looks a lot like what the S&P 500 looked like in the months following the sharp 1987 collapse. It seemed like the end of the world in October of that year, and yet in retrospect it was just the fifth year in what proved to be an 18-year secular bull phase.”

Bringing technical analysis to the equation, Adam Hewison of INO.com has prepared another of his popular analyses, specifically on the CRB Index. Click here or on the image below to access the short presentation.


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1 comment to Favorite theme: commodities

  • Frank W

    Generally, whenever a listed item has a major run, tops out and then begins its descent, it will not head directly for its downside target. Instead, it will stop short, turn around and have another strong run-up which, however, will in the great majority of cases not exceed or even come close to its previous peak. This mid-decline turn around and run-up is called a “B”-wave. It is the major rally in downtrend. Generally speaking, “B”-waves make no sense at all. When one keeps asking himself “Why is the market rising, when we are in strong downtrend?, it is because we are experiencing a “B”-wave. I suspect that what we are seeing in commodities is a “B”-wave. For example, oil had a very strong run-up, topped out at a high level, then turned around and headed back down. Using a technique borrowed from Sedacca, I estimated the bottom at around $15 a barrel, if memory serves me correctly. What happened is that oil stopped falling in around the $40-$50 dollar range, turned around and headed back up. I suspect we are now seeing a “B”-wave, which is the major rally in downtrend. We shall see if my suspicions are correct.

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