Catching a Falling Commodity Knife
The April collapse in gold has drawn attention to the two-year decline in the commodity sector. Since gold's collapse both it and crude oil have experienced a strong rally over the last two weeks. Many want to know if commodities have bottomed.
Taking a look at the Continuous Commodity index (CCI) we can see that it has breached the 61.8% retracement of the June-September advance opening the door for a return to the low near 500. The trend momentum indicator, ADX, confirms the downtrend.
The ratio chart shows continuing severe under-performance of commodities versus equities (CCI/SPX) giving no reason to think that a low has been seen in commodities yet.
The daily (and weekly) Coppock Curve, if it continues to hold above the 2/27/13 low (as the index prints new lows), will constitute a positive divergence and imply a rally should be expected in commodities. A 71-Day cycle in the DJ UBS Commodity index shows an expected turn ideally on 5/15/13.
The 5year cycle in the commodity index ideally points to a major low in December 2013. In the meantime, weekly cycles forecast an inflection point in the same index in mid to late July. Assuming a May low makes me expect the turn in late July to be a top.
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Author: Ed Carlson
Ed Carlson
Seattle Technical Advisors.com
Ed Carlson, author of George Lindsay and the Art of Technical Analysis, and his new book, George Lindsay's An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.
Copyright © 2012-2017 Ed Carlson
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