Last month, in our previous update on the CRB Index, we were mentioning that the rebound generated in late February/early March would have the 265 and 305 points as main targets (Money Morning of May 27).
The first target has actually been reached two weeks ago, and as expected a corrective move has been following. The rebound has driven the price from the low of 200.34 points (point B on the chart, posted on March 2) to the recent high of 266.17 (point C, posted on June 12). That was a 33% jump in 3 months and a half that failed to break above the first significant resistance line.
This resistance line was the first Fibonacci retracement of the decline occurred last year, between points A and B. Most of the technical indicators were peaking to high values, and that’s why many traders found logical to sell back commodities as the CRB was approaching a resistance level.
From the recent high of 266.17 points, the price action has already corrected by 7.5%. The index is currently trading around 246 points. Is it a pause a bullish trend or could this correction send back the CRB index towards the low levels around 200 points?
With the current indicators, we reckon that the current bearish move is likely to remain a temporary technical correction. We expect a further correction in the near-term, but there are several supports that should back the price action and eventually constitute a basis for a continuation of the trend started in March.
The indicators are all bearish as they have been correcting from their peak points. The MACD curved downward and crossed below its moving average while the 30-day Commodity Channel Index (CCI) has plunged and crossed below its zero line. However, two intermediary supports at 245 points (the current level) and lower at 230 points may become opportunities to become “long” again. Those levels correspond to previous high points the may become the new lows.
The 10-day moving average is also still above the 40-day moving average (it had crossed above it in March 20, which was a medium-term bullish signal).
The area between 245 and 230 points will probably see a lot of buying interests, but a crossed below 230 points would be clearly a door opened towards the low of last March.
Good investing,
Gabriel
