Volatility

Kris Sayce (KS): Yesterday you told me to hold off if I wanted to buy gold – which was great because the gold price was down again last night. But what about the broader market for commodity prices? What are your charts telling you?

Gabriel Andre (GA): I monitor the Reuters/Jefferies CRB Commodity Index. It is a commodity price benchmark made up of 19 commodities. It includes petroleum products, base metals, and agricultural products. It has been consolidating since early December after it hit a low on December 5 at 208.58 points. Yesterday it closed at 219.21 points, which is 5% higher.

The last time I showed you the CRB index on December 2, the RSI was clearly oversold and it looked like a rebound might occur. Especially because the level of 230 points was identified as a support. However, since then the price action cleared on the downside this level before rebounding.

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Since the resurgence of the credit crisis a few months ago, both stocks and commodities prices have been plunging. But the FX market is probably the most impacted as the volatility has soared dramatically to produce unprecedented sharp moves on several currency pairs of the G10 universe.

In our last update on the AUD/JPY on September 30, the pair was still trading around 83.50. Less than one month later, it is now trading around 57.25 therefore 31% lower.

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This has been a tough week on the markets. One day is white, the next day is black. The pause in the bearish market has been very short then. Monday and Tuesday have been bullish sessions thanks to the governments’ guarantees around almost all over the world. Yesterday the S&P/ASX 200 fall back by 6.67% to 4,013.40 points.

As we were mentioning in our last update (MM of October 1st), the bears still drive the market and will probably lead it to lower levels.

As the retracement levels (after 4 years and a half of continuous rise between March 2003 and November 2007) considered as intermediary supports have all been cleared one after the other, and the next support is 500 points below the current level. It’s another 12.5% fall away. This objective, at 3,500 points, is an old previous high level which acted as a resistance in 2001, 2002 and 2004 (points A, B, C and D on the weekly chart). Once cleared, it became a new low (point E) and was an impulse point for a new rally phase in the second half of 2004.

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Money Morning Uncertainty Index

We almost don’t know what to expect from today’s market. This time last week the bottom seemed to be falling out of it. Today a strong lead from Wall Street could help to push it higher. But it’s all ‘ifs’ and ‘buts,’ the reality is we don’t know.

It really comes down to the willingness of investors to hold open positions over the weekend. So far, as we watch the market opening almost everything is turning green. But we still have that nagging unease. The ‘V’ word is still evident.

We know that we are on the verge of overusing it, but volatility is still a major issue. It’s all very well for us to print a chart of the VIX index, or a table showing how the market has swung, but what does it mean?

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