It’s Make Or Break Time For Commodities
In 2001, after having been mired in a secular bear market for more than 20 years, commodities embarked on a new bull market. The Reuters/Jefferies Commodity Research Bureau Index (CRB) gained 167% over the following 7 years before losing nearly the entire gain in the 2008 commodities crash. After a reflexive bounce back in 2009, the CRB has essentially gone sideways for the past 5 years.
After a strong burst higher to start the year, it appeared the post-2001 commodity bull market may be resuming. However, over the past 4 months, the CRB has lost its entire year-to-date gains. The decline has left the index at a potential make or break point for those investors looking for a resumption of the commodity bull market.
There is a confluence of significant support junctures on the CRB chart near current levels. Should the index fail to hold near here, it may open the index up to substantial further downside. These levels include:
- the 61.8% Fibonacci Retracement of the 2009-2011 rally
- the June 2012 lows
- the top side of the post-2008 down trendline, broken earlier this year
Each of these potential support levels sit near the 265-270 area. Currently, the CRB is trading around 273. Therefore, the index does not have much further downside before these levels come into play.
In addition to these key chart levels, there are several other factors supporting a bounce in commodities. These include favorable Commitment Of Traders positions in key commodities, dour sentiment and a relative dearth of assets in various commodities funds.
The confluence of support on the CRB chart is significant enough to produce a bounce in commodities. Add in other sentiment and allocation data and such a bounce could be substantial and durable. Even a resumption of the post-2001 commodity bull market would not be out of the question. However, should this key level fail to provide support for the CRB, it opens the index up to further (perhaps significant) weakness. It would also cast a doubt on the likelihood of resuming the commodity bull market any time soon.
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Photo by Melancholy Rose.
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