Wednesday Commodities Round-Up

There have been some really strong price moves in the commodity markets over the last few days.

Commodity markets slumped for a third straight session Tuesday, as a surging dollar and fewer worries over supplies hammered energy, metals and agricultural prices.

U.S. crude closed down nearly $6, bringing it almost $10 off Friday's record high near $146 a barrel.

Among industrial metals, aluminum lost 6% in London and copper fell nearly 4% in New York. Gold, which moves in step with oil but opposite to the dollar, also closed down.

Corn futures finished 3% lower and soybeans fell almost 2% in Chicago, retreating further from record highs last month.

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"Overall, a stronger U.S. dollar, weaker oil and concerns about the global economic outlook have hurt the complex," said David Thurtell, an analyst at BNP Paribas in London.

But before we start to celebrate, let's take a look at the charts.



On the overall CRB index, note the following:

-- The uptrend is still in place.

-- Although prices have moved through the 10 and 20 day SMA, prices have actually used the 50 day SMA for technical support in the current rally.

-- All the SMAs are still moving higher

-- There is a great deal of technical support around 440.

Short version: we've seen two days of profit taking. But we haven't seen the kind of technical damage to the chart that will get traders to dump long positions yet.



Agricultural prices are interesting. I have been writing for several weeks that the chart looked like it might be forming a double top. That seems to be more and more likely. Remember the latest rally was caused by a natural disaster which by definition has a time limit. As a result, when the disaster retreats so does the reason for price increases. Also remember an old adage that one of the cures for high prices is high prices. This simply means that when prices get high enough they lead producers to find more product to sell or decrease demand in some way. Either way, it adds downward pressure to prices.



Gold is a proxy for inflation expectations in the markets, which also means gold can give us an idea for what traders are thinking about the future prices of commodities. Golds chart is sending a bunch of very mixed signals.

On the bearish side:

-- Prices are still in the price valley that formed after their peak in early March.

-- Although the SMAs are technically in a bullish alignment, they are still bunched up in a narrow range.

-- Prices are still meandering in a fairly tight range.

On the bullish side:

-- Prices are above all the SMAs

-- The shorter SMAs are above the longer SMAs

-- Prices have spent a few months consolidating from the highs in late March, but haven't crashed.