After an extended sell down running from Apr. '11 through Jun. of this year, the commodities
market experienced a sharp rebound until just recently on the wings of speculation that major
central banks were prepared to engage in a new round of easing (which they subsequently did).
During the last sharp downward break this year, the CRB index did fall through very long term
support at the 290 level on its way to 270. That was not a good sign, but it left the market deeply
enough oversold to entice players (including yours truly) to come in on the long side. The
recent rally from the early summer lows was a strong 18.5%. However, the CRB did fail to
take out resistance at the 320 level. CRB Chart That is a disappointment on technical grounds
and, for me, it was also disappointing fundamentally as my long term value model for the CRB
had the index as reasonably priced at 320. I read the flop at 320 as an expression of trader
concern over whether the newest programs of monetary policy QE will work to restart global
economic growth just ahead.
Although I did sell out my long position of the DBC commodites ETF over Jul. 18 - 19 as posted,
I still have an interest in this market from the long side. We do have the QE programs in play, and
the chart does show a clear positive break above the downtrend in the CRB from Apr. of last
year. However, and this is not shown on the chart, the recent interim high in the CRB of 320 does
fall on a longer term downtrend line running from the Jul. 2008 blow off top near 475. The
fail of the CRB to take out long term trend resistance at 320 adds heavier weight to that level and
increases the gravity of betting against the longer term direction of this market especially since
the 2011 - 12 price correction took out cyclical trend support.
Fundamentally, the largely downward price action of the CRB since Apr. 2011 not only reflects
the loss of global economic growth momentum since then, but it also suggests the overall
situation of global commodities supply / demand may be more balanced in terms of supply growth
than I have expected.
For now, I am content to see if a substantial oversold condition develops for the CRB before
dusting off looking for a long side commodities ETF to play.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!