Since 2001, the raw commodity futures markets have seen major bull runs unfold, including all-time highs set for some markets. A look at the monthly chart for the Continuous Commodity Index shows a steep uptrend line in place from the 2001 low, which clearly depicts the commodity price inflation which has occurred during the past six years. Just recently the CCI hit a fresh 30-plus year high.

There are presently no strong technical clues to suggest that the major bull move in commodities will come to an end any time soon. In fact, any strong technical signals to firmly suggest the bull run in commodity markets has ended would very likely develop over a period of a few months, or longer.

However, there is little doubt the overall raw commodity sector worldwide is in the mature stages of a major bull market. This suggests that while new highs may be scored in the CCI or in individual commodity markets in the coming weeks or months, it's very likely that the raw commodity sector has already traveled the majority of its bull move north during the past six years.

By using the monthly CCI chart as a barometer, it's doubtful the steep uptrend seen the past six years will continue its steep ascent in the coming few years, and at the least is due for a decent corrective pullback soon. This tenet, by itself, is at least a longer-term "shot across the bow" for raw commodity market bulls.

The monthly CCI chart shows that since the longer-term price uptrend began in 2001, there has not be a serious downside correction in the uptrend, which is surprising and does suggest a significant downside correction is due. And remember that the CCI, on a monthly chart basis, could "correct" down to the 370.00 area and still have the primary uptrend line remain intact on the monthly chart. And from a Fibonacci technical perspective, the monthly CCI chart would not see a 50% retracement of the upmove from the 2001 low to the 2007 high occur until prices hit the 320.00 area. Classic Fibonacci technical analysis suggests that price uptrends can remain in place as long as more than 50% of the uptrending move has not been retraced on the downside.

From a nearer term perspective, there is also a developing fundamental economic factor that should be a major concern for raw commodity bulls hoping to continue their successes in the coming weeks and months: the specter of U.S. economic recession leading to deflationary pressures worldwide. Indeed, deflation is the arch enemy of commodity market bulls.

The declining value of the U.S. dollar versus the other major currencies has recently added to bullish fervor in the commodity futures markets. A weaker U.S. dollar makes commodities priced in dollars cheaper to buy on world markets, including crude oil. The weaker greenback has made it very attractive for non-U.S. traders and investors to buy crude oil futures contracts, amid a near-term very bullish fundamental and technical situation in the liquid energy futures.

Crude oil is the key "outside market" for other commodity markets

The recent all-time record highs scored in crude oil futures, and the weaker U.S. dollar, have spilled over into speculative buying interest in other commodity markets, including gold futures, sending the precious yellow metal market to fresh 18-month highs recently.

An extremely tight world demand and supply balance sheet for crude oil and ongoing geopolitical tensions in oil-producing regions have fueled the liquid energy bulls the past few months.

Continued uncertainty over Middle East oil supplies has also been supporting crude prices in recent weeks.

From a contrary point of view, veteran analysts and traders have taken note of the general consensus among the energy market public that crude oil prices are destined to hit the major psychological price level of $100 a barrel soon. Wire services have recently seen the $100 crude moniker in many headlines.

The truism that the general investing and trading public is generally wrong in its market prognostications does suggest an intriguing notion: Crude oil futures prices will come tantalizingly close to the century mark in the coming days or few weeks, only to see a sharp downside correction or maybe even a market top that comes very close but fails to reach triple digits.

The other raw commodity futures markets have ridden the coattails of the two key "outside markets"--crude oil and gold. It all sounds like a very bullish near-term cocktail for commodity futures traders, right?

But from a longer-term macro-economic perspective, it can be argued that a weaker U.S. dollar could actually lead to economic deflation. In fact, deflation has already taken hold in one major sector of the U.S. economy: the housing and real estate sector.

The present technical posture and general psychology of the raw commodity market sector reminds of the technical posture and general psychology of the U.S. stock market in the late 1990s--especially the high tech stock sector (Nasdaq). In the year 2000 the U.S. stock market went from boom to bust.

The premise here is that there has been no major paradigm shift in the structure of world economies to suggest that the boom in raw commodity markets will carry on indefinitely. Booms generally lead to busts. History shows this and history continues to repeat itself.

As a futures trader taking into account the above premise, traders should not be as keen as in recent months to be a general bull and "buy the dips" in up-trending commodity prices. Neither should a trader be keen to be a would-be top-picker via straight short positions in futures markets, in those markets that have been trading at or near recent historic highs. Not only could one be wrong on price trend in picking a top, but the higher volatility at higher price levels is an added risk of being stopped out of a short position, only to have the market immediately reverse course and trend lower. Rather, one should be keener to examine put options purchases on those markets that do start to show solid technical signals of an impending intermediate-term price downtrend.

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