The Reuters/Jefferies CRB Commodity Index is a commodity price index created in 1957 and currently made up of 19 commodities (petroleum products, base metals, agricultural products…). It has a critical role as a transparent and widely available benchmark for the performance of commodities as an asset class.
In our last update of August 13, the bearish technical indicators were arguing for a further move on the downside. At this time the CRB index was trading at 385, and the expected target for the correction pullback was 363, which was a key Fibonacci ratio. The price action eventually fell below this level as it posted a closing low price at 341 on September 16.
A strong rebound has already driven the Index back to 366, the closing price yesterday. Investors consider that the correction that occurs on the global commodities markets has been too strong in a relatively short-time frame. Despite the lower demand worldwide generated by a slowing economic growth, the financial credit crisis and the action plan decided by US authorities is likely to make the US Dollar plunge. That’s why, as a mechanical hedge against the decline of the Greenback, the commodities have bounced back sharply.
Three days ago (September 22), surging prices for oil, silver, soybeans and gold sent the CRB Index to its biggest gain in more than five decades.
All 19 commodities in the index gained. However the very next sessions should be choppy as the price action has just reached a first resistance line. This resistance is built by the lower high points (points C, D and now E) posted since the beginning of the retracement initiated in early July (point A).
Between A and B, the CRB fell by 28%. Despite the recent bounce back, the price action has failed to cross above the medium-term resistance line at 374, which also corresponds to the 23.6% Fibonacci ratio of the 2 months-and-a-half-decline, and to the 30-day moving average. There are consequently 3 good reasons for traders to sell back the CRB.
However the technical indicators have turned bullish therefore a further upside move is probable. The RSI showed that the CRB was clearly oversold, so did the Commodity Channel index that is now well oriented on the upside. The MACD has triggered a bullish signal last Friday.
If the current price development succeeds to clear the resistance level and to jump above 375, the next targets would probably be the next Fibonacci ratios, therefore 390 (38.2%) and 405 (50%).
