The Reuters/Jefferies CRB Commodity Index, the commodity price benchmark made up of 19 commodities (petroleum products, base metals, agricultural products…) continues its sharp sell-off started in early July.
Despite a small rebound generated in the second fortnight of September, commodity prices tumbled to a four- year low today, at 266 points (point C on the chart). This pull back has been especially driven by declines in oil, metals and grains. There is no doubt now for investors that the expected global economic slowdown will reduce demand for raw materials around the world.
The weekly chart clearly shows that the massive sell-off in place for almost 4 months now has just reached a new low that may be a support level. But first let’s consider the figures of the decline. They’re impressive. Since early July and the peak point, the CRB price development has corrected by 44%, falling from 474 to 266 points. It’s a confirmation that bearish markets are always faster than bullish markets…
The current levels have been tested the last time in June 2004 (point B). It was a new low point for the price action after it had been a previous high posted in 1996 (point A). That’s why the current level around 265 might be a support level, probably as an intermediary one. However the momentum indicators remain clearly bearish and argue for a further move downward.
The MACD and the Commodity Channel Index have not bottomed yet and despite posting very low values, don’t show yet a bottom and a potential curve upward. One of the main important things to notice is that the Relative Strength Index (RSI) has just reached the typical oversold area (below 25), which means that oversold critical point has not been reached yet. For instance, the RSI bottomed lower in October 2001 (in the blue ellipse) when the CRB Index bottomed at 185.
In this bearish scenario, the next target for the sellers may be the level of 230, which had also been a high in late 2000 and early 2001 and that became a new low in 2003.
Good Investing,
Gabriel
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