The Reuters/Jefferies CRB Commodity Index, the commodity price benchmark made up of 19 commodities (petroleum products, base metals, agricultural products…) has continued its broad decline started in early July.
In our last update (MM of October 23) we were mentioning that commodity prices had tumbled to a four- year low today, at 266 points (point C on the chart), and that a further move downward was likely as the indicators were clearly bearish.
The price action actually hit the following expected support level at 230 points It means that the CRB has lost more than 50% of its value in 5 months (between points A and B on the weekly chart). This new support level at 230 points is a previous high point posted in October 2000 (point C), then in January 2001and in October 2002 (points D and E). Once this resistance was cleared, it became a new low and the inflection basis point for the bullish trend development that started in March 2003 (point F).
The RSI shows that the CRB is clearly oversold now. Therefore technically, the current support level may be an opportunity for a bounce back. But as long as the RSI does not jump above its signal line and gets out of the oversold area, there is no positive alert triggered. Consequently the price action can potentially decline further with a RSI that remains oversold during several weeks.
A break of the current support would open the door towards the historical low levels posted in February and July 1999 (points G and H) and in October 2001 (point I), when the CRB bottomed at 182 points. Roughly it’s a further 20% fall from the current levels.
On the daily chart, we see that the immediate resistance during the large decline generated last July is the 30-day moving average. If the support at 230 points holds (yesterday the closing price of the US session was 233.35), the Fibonacci retracement ratios are likely to become the price objectives.
