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).

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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%).

Despite all the market excitement, some things never change. On Monday the Australian Bureau of Agricultural and Resource Economics (ABARE) released its September quarter commodities report.

It further strengthens our reasoning for not caring about what happens in the US. Of course, if the US does go into a steep recession it will have an impact on global markets and economies. But the influence of the US is becoming less important as time goes on.

When we take a step back and look at what is happening in Asia and the rich Arab emirates in the Middle East it becomes even more apparent that Australia does not need to be too concerned about the US Congress taking on USD$700 billion of additional debt.

Why? Because it is all still ticking along nicely in the commodities markets.

For the most part anyway. There is the odd story floating around of capital raisings being postponed due to tighter credit markets, but they appear to be in the minority.

The report from ABARE tells us that although “world economic growth is assumed to decline from 5 per cent in 2007 to around 3.9 per cent in 2008 and 3.8 per cent in 2009″ Australia’s “commodity export earnings are forecast to increase to a record $214 billion in 2008-09.”

Australian Resources Exports to Increase by 48%
That represents an increase of 40% over the previous year. Even better than that is that energy and minerals exports are forecast to increase by 48% to $178 billion.

Putting those figures into perspective, the entire value of all exports for the year until May 2008 was $216 billion.

In other words, based on forecasts (which may or may not be reliable) the resources sector alone will export this amount alone.

And what market share does the United States contribute to our exports? Last year it totaled $10.3 billion, that’s less than half of what was exported to China. And only a third of the exports to Japan.

Look to Asia for Profit Growth
Compare the economic growth rates of the major OECD economies…

… with those in Asia.

We know things can change. And we also know that many of these Asian countries rely on the US as an export market. But increasingly, the new economies in Asia are growing to an extent that is making the ‘Old World’ economies less important.

 

A leading Chinese company has been given approval to lift its shareholding in Murchison Metals. The Federal government’s decision will see Murchison shares jump today on the ASX. Murchison shares jumped 10.9% in Friday’s big surge to close up 12c at $1.22. They had been weak for the last few weeks as investors have gone cold on resource stocks and Sinosteel moved to mop up Midwest. Now it can switch its attention to Murchison. Sinosteel has a 2.6% stake in Murchison, but close to 20% is controlled by the Harbinger hedge fund of the US. It delivered control of Midwest to Sinosteel last week by reversing its opposition to the Midwest bid and accepting the Sinosteel cash offer. There was no mention of board representation for Sinosteel on Murchison in the event it gets to 49.9%, the maximum allowed under the Government’s decision, revealed yesterday. That maximum level is also a hindrance because it can’t get to that level by making a full bid. It can acquire it gradually, but that could take years. But the Government’s decision means Sinosteel has also been allowed to tighten its control on the Mid-west iron ore province east of Geraldton in Western Australia. The Federal Government has green-lighted an application by Sinosteel Corporation of China to acquire up to 49.9% of Murchison Metals, but not control, according to a statement from the Federal Treasurer, Wayne Swan yesterday. Mr Swan said that he made the ruling under the Foreign Acquisitions and Takeovers Act 1975. It had been expected for some time and came less than a week after Sinosteel secured control of rival Midwest Corporation and moved to compulsorily acquire the outstanding shares in Midwest. Sinosteel had previously sought to acquire up to 100% of Murchison, which was the subject of an Interim Order under the Act. Sinosteel withdrew that application after some opposition was voiced. Mr Swan said that “there have been significant developments since the original application was made.

 

“The Western Australian Government recently awarded rights to construct new port facilities at Oakajee to a joint venture between Murchison and Mitsubishi Corporation.

“It is also considering proposals to build new railway lines to link the iron ore deposits in the Mid West region to the port.

“Sinosteel has recently acquired more than 97% of Midwest Corporation Limited which has iron ore deposits adjacent to Murchison’s.

“Midwest and Murchison have previously sought to merge their operations by takeover proposals that did not proceed.

“The Government welcomes foreign investment in Australia and I will continue to ensure that investments are consistent with Australia’s national interest.

“The Mid-West region may ultimately become a significant new source of iron ore exports to the north Asian iron and steel markets.

“Murchison is an emerging iron ore miner with deposits in the region.’

Mr Swan that that “In determining this application, I have determined that a shareholding of up to 49.9% in Murchison will maintain diversity of ownership within the Mid West region.

“The Government considers the development of such potentially significant new resource areas should occur through arrangements that are open to multiple investors.

“This approach is consistent with the national interest principles we released in February and with the approach I have outlined previously, including in discussions with my Chinese counterparts.

“The Government’s objective is that development of our considerable natural resource endowment occurs in a manner that allows Australia to remain a reliable supplier in the future to all current and potential trading partners.

“This ensures the maximum development of our resources and a fair return to all of the Australian community.”

Sinosteel had offered $6.38 a share offer for Midwest.

The acquisition was the first successful hostile Chinese takeover of an Australian company and became possible after Murchison’s former Midwest deputy chairman David Law and US investor Philip Falcone (Harbinger) agreed to the offer at the last minute early last week.

It sounds like more of the same from the past few weeks: sharemarkets rattled, financial stocks rattled and commodities on the slide. 

Well, it was up till Friday when it suddenly became a very different story.

And this morning, a switchback, with oil under the $US100 a barrel mark in New York trading early today as damage from Hurricane Ike wasn’t as bad as feared.

The US dollar fell Friday as the slide in the euro came to an end; the Australian dollar bounced a couple of cents; gold, copper and several other commodities rose and Hurricane Ike was the big influence.

But the big question was whether Friday’s bounce was due to Ike coming ashore and apparently not leaving too much damage to the oil and gas producing, refining and distribution facilities along the Texas coast between Houston and Galveston.

At least 13 refineries in Texas were shut for the passage of Ike.

That was 3.64 million barrels a day of refining capacity.

But as we have seen after storms in the past month, once the situation is clarified, then the prices of oil, petrol and gas will ease quite quickly.

And that’s what seems to have happened after Ike as oil fell in early electronic trading in new York to $US99.25 after dropping to $US98.75 a barrel early this morning, our time.

The October New York contract briefly dipped to $US99.99 on Friday, falling under the $US100 level for the first time since April 1.

But Nymex crude in New York rose 31c to close at $US101.18 a barrel.

In London, October Brent North Sea crude eased 6c to settle at $US97.58 a barrel.

Oil prices are down $US47.29 a barrel since the peak of $US147.47 on July 11.

For all the sound and fury of Ike, the real story remains the continuing dip in American consumption of oil-based energy products.

US energy consumption is down 3.8% over the past four weeks compared with the same period in 2007, while petrol consumption is down 2.1%.

 

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On the Chicago grain markets, the emphasis is shifting as the harvest gets underway and the yields of wheat, corn, soybean and other crops becomes clearer.

The United States Department of Agriculture said on Friday that the hugely important corn harvest won’t be as big as thought because of widespread dry, warm weather last month.

The USDA said farmers will harvest 1.8% less corn than forecast last month, while the soybean harvest will be down 1.3%, but wheat output will be higher in both the US and globally.

The USDA forecasts steeper increases in corn and soybean prices, which have eased from the record levels set earlier in the year.

December corn rose 30 USc, or 5.6% on Friday to $US5.6325 a bushel in Chicago. That pushed prices up 2.7% this week. That left the price of the most active contract down 30% from the all time high of $US7.9925 in late June.

November soybean futures rose 26c, or 2.2%, to $US12.02 a bushel in Chicago. The price rose 2.1% last week. Beans are down 27% from the all time high of $US16.3675 hit in early July

The USDA said the average cash corn prices in the crop year that began September1 were $US5.50 a bushel, compared with $US5.40 estimated in August and $US4.20 in the most recent year.

The Department said cash soybean prices will average $US12.35 a bushel this crop year (which started on September 1), up from last month’s estimate of $US2.25 and up from $US10.15 in the previous year.

 

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Wheat was the odd one out with prices falling for a third straight week after the USDA made no change in its estimate of US domestic stocks in the coming year, suggesting that there might be more grain than the market thought.

The USDA said it expects US carryover stocks on May 31 (the end of the wheat crop year) will be around 574 million bushels, while exports will total 1 billion bushels, matching the forecasts made in August by the USDA.

December wheat futures fell 7c to $US7.1925 a bushel on Friday, down 4.3% over the week and 19% this year.

The USDA also increased its estimate of global production to a record 676.3 million tonnes, up from last month’s forecast of 670.8 million tonnes.

Canadian farmers will harvest 25.4 million tonnes, up slightly from the August forecast of 25 million tonnes; European Union output will be 147.2 million tonnes, up from 143.2 million tonnes in the August forecast and these will offset declines in Australia and Argentina: Australia will produce 22 million tonnes, down from the 25 million tonnes in the August forecast and Argentina growers may harvest 12.5 million tonnes, 1 million tonnes down on the August estimate.

According to the USDA’s forecast, the US is expected to be the largest exporter of wheat, followed by Canada, Russia, Australia, Ukraine and Argentina.

 

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Copper had its best week in three, rising sharply on Friday as the US dollar lost ground against the euro.

Comex December copper futures added 7.15 USc, or 2.3%, to $US3.194 a pound. The price was up 3.1% last week

The metal climbed from Wednesday-Friday, as signs of declining mine output increased concerns that supplies may be tight next year. Some analysts, especially at Citigroup, are forecasting demand to run ahead of production next year.

Copper was also supported Friday by a fall in Chinese stocks.

Stocks overseen by the Shanghai Futures Exchange dropped 29% to 13,554 tonnes, the lowest level since 2003.

On the London Metal Exchange, three month copper rose $US192, or 2.8%, to $US7,122 a tonne, or $US3.23 a pound.

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Gold jumped Friday, ending a nine-day losing streak, thanks to the US dollar’s fall against the euro.

The euro rose as much as 1.5% against greenback, but ended off 0.3% for the week.

The Australian dollar finished at $US82.36 in New York, up from $US80.48 in Sydney on Friday afternoon and $US81.64 in Sydney the week before.

It was a rare gain for the currency, the first for a month or more over the week and the strongest daily performance for weeks.

Gold fell 4.8% over the week, despite a $US19 dollar an ounce rise on the day.

Comex December gold rose $US19, or 2.5% to $US764.50 an ounce in New York. The metal had fallen 11% from the end of August to last Thursday

Silver also had a rare rise, finishing up 24c, or 2.3%, to $US10.795 an ounce for the December contract. The metal still dropped 12% last week and is down 28% this year.

Gold is down 26% from the record $US1,033.90 reached in March and is off 8.8% in 2008.

 

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When commodity prices are tanking, no one wants to know about mines, grades or new discoveries. Attention is on sliding share prices, falling prices for the commodity themselves, so rarely do investors concentrate on the underlying growth or ideas behind a company’s decision to do something. The only time heads pop up and look around when there’s some corporate activity: the chance to exit an investment because someone else has popped along with what seems to be a great offer in a falling market. That’s the greater herd theory at work: value can only be found in what the mob sees as a good idea or investment. And when times are tough and investors are scarce, interesting and intriguing news from the mining sector can slip past, almost unnoticed. In the past week or so we saw a couple of examples of this with Kagara Ltd revealing a very rich nickel strike in Western Australia, to go with mining plans for a big deposit it has outlined elsewhere in WA and Western Areas also revealing an upgrade to its Spotted Quoll prospect, which is in the same area (along the same strike zone actually) near Forrestania in Western Australia. Kagara last Wednesday had its shares suspended pending an announcement about the quality of the strike at its romantically named Lounge Lizard prospect in WA. That was done and the shares remained off the boards until Friday when it revealed that the strike was a very attractive grade of nickel (two years ago the shares would have gone mad). Kagara, which is a zinc and copper producer said it had found an intersection of “massive and semi-massive” nickel sulphides at the Lounge Lizard deposit in West Australia. “Kagara Ltd is pleased to announce a record intersection of massive and semi massive nickel sulphides in hole LFPD18W2W1 at the Lounge Lizard deposit in West Australia. The intersection is comprised of three zones of massive sulphide with an aggregate drilled width of 33.46 metres within a 76.50 metre section. “The intersection lies approximately 150 metres up dip of the previously announced indicated resource of 5.7 million tonnes at 1.08 % nickel which includes an indicated high grade resource of 263,000 tonnes at 6.42% nickel “To Kagara’s knowledge this intersection is the best in terms of contained nickel drilled, either historically or in recent times, in the Forrestania region and will result in a significant increase in the Lounge Lizard resource,” it said. But Kagara shares have been weak and are down sharply in the past week. They finished at $2.50 yesterday, down from $3.15 a week ago on Tuesday. They hit a 52 week low of $2.39 this week, breaching the previous low of $2.63. That’s a fall of around 19% in a week. The sharp fall in commodity prices has been the driver as no one wants to know anything about new metal discoveries. Copper, nickel, lead and zinc remain under pressure, and so does the Kagara share price The Kagara strike is north in the same area of Western Area’s Spotted Quoll nickel discoveries, which that company reported on earlier this month. It too has a very significant nickel discovery, but the market doesn’t want to know. Shareholders will be hoping for more at the AGM in Perth later today (Friday) The shares closed at $8.60, down 98 in the past two days. Investors are treating it like all other mining companies. No talk of a ‘boom’ here these days. Here’s part of what Western Areas said last week. “The Board of Western Areas is pleased to announce a 118% increase in the high grade mineral resource at Spotted Quoll.

 

“The revised mineral resource estimate at Spotted Quoll now comprises a total 1,045,900 tonnes at an average grade of 7.2% nickel for 75,140 tonnes contained nickel to only 300 metre vertical depth.

“The majority of the mineral resource (88%) is in the high confidence Indicated Mineral Resource category.

“This excellent result confirms the potential for a major underground mine below the proposed open pit. Western Areas is already considering early development of an underground mine which could produce ore concurrently with the latter stages of the open pit.

“In this event, production could significantly exceed the target 8,000 tpa nickel from Spotted Quoll. A mining proposal for the Spotted Quoll open pit has been lodged and, assuming this is approved by the end of 2008, ore production is expected to commence in the Sept Q 2009.

“The revised mineral resource rates Spotted Quoll as one of the world’s highest grade and most continuous nickel deposits, less than 12 months since its discovery in October 2007.

“Importantly, Spotted Quoll remains open at depth and open along strike. Further mineral resource upgrades are likely as drilling continues between 300m and 600m vertical depth.”

A map on page two of this announcement on Friday from Kagara shows the proximity of the two companies’ big strikes.

This was the second bit of good news from Kagara in recent weeks.

On August 22 it revealed more details about the deposit it was working on at Admiralty Bay with discussion about a possible mine. The shares rose after that, but that was very much different to the reaction to Friday’s announcement.

“Kagara is pleased to announce an initial resource estimate for the Admiral Bay deposit containing an Inferred resource of 72 million tonnes at a grade of 3.1% zinc, 2.9% lead, 18 grams per tonne silver and 11% barium reported at a nominal 2% zinc equivalent cutoff.

“This is a subset of a larger Inferred resource containing 97 million tonnes at a grade of 2.4% zinc (2.3 million tonnes of zinc), 2.9% lead (2.8 million tonnes of lead), 16 grams per tonne silver (48 million ounces of silver) and 16% barium also reported at a nominal 2% zinc equivalent cutoff.

“The model has been restricted to a 2.1 kilometre section of an 18 kilometre strike length of known mineralisation and the resource remains open to the east and west along strike.

“$35 million has been spent over the past 18 months at Admiral Bay and confirmed Admiral Bay as a deposit of world significance.

The company said the resource remains open to the west where the closest drill hole is located 2 kilometres along strike and which encountered a 13 metre intersection grading 4.3% zinc, 3.1% lead, 29 g/t silver and 9% barium and also encountered 25 metres grading 4.5% zinc, 0.8% lead, 23 g/t silver and 3% barium. Intersections of up to 20 metres at 8.3% zinc, 4.9% lead, 36 g/t silver and 21 barium from within the resource, have demonstrated the potential for higher grade zones within the overall resource.

“Scoping studies using the resource grades and contemplating a 10 million tonne per year underground operation have shown that the operation has the potential to produce 300,000 tonnes of zinc, 250,000 tonnes of lead and 4.5 million ounces of silver annually.

“Metallurgical test work has shown that coarse grained very high quality lead and zinc concentrates will be produced at recoveries in excess of 95% into very high quality concentrates.

“The cost of production is expected to be in the lowest quartile of cash costs worldwide.

“Metallurgical test work is continuing on the recoverability of barite to a saleable product and it is expected that a proportion of the 2 million tonnes of barite processed annually will be recovered which will further reduce the cash cost of production.

“A number of development options are currently being considered for taking the project forward.

“Drilling over the past 12 months has shown that defining a reserve from surface drilling is currently cost prohibitive and an exploration shaft with 2.5 kilometres of lateral development will be required to bring the project to a bankable status. At present, a diamond drilling program to obtain geotechnical information in preparation for the sinking of a shaft is nearing completion.”

So Admiralty Bay has a lot of potential, but there are higher costs than first thought in getting to them and getting them out.

But as attractive as they are, the market has gone right off resources and mining stocks in particular. It’s an old story for miners about the fickleness of the herd.

The Copper Find of the Century
Below, takes a look at Cudeco [ASX:CDU]. This is the stock that you may remember traded briefly at $10 in early 2006. At the time, the company found what it was spruiking to be the copper find of the century.

Things seem to have gone a little quieter for Cudeco since then, but now  has dusted off his Fibonacci ratios to give it the technical treatment.

Is This the Copper Stock to Take Advantage of the Copper Rebound?

Cudeco Limited (ASX:CDU) is a mining company that specialises in copper exploration and production.

The stock has been trading in a channel since November 2006, roughly between $2.5 and $5. This channel is slightly bearish as its support line goes through lower lows over the time (points A, B, C, D and E).

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Despite a false break occurred in last January (point D), market players still consider this support line as the basis of potential rebounds. This is why the stock, since it has reached this support at $2.47 on August 11, has been bouncing back.

The upside of the channel was a resistance line that was built by lower highs (points F, G, H and I). This resistance was broken in last May, which was consequently a strong bullish signal. The stock jumped then from $3.78 to $4.69, which is a 25% increase, but fell back massively in the context of global turmoil on the equity markets. Following this intraday high price of $4.69 posted on May 28 (point J), the stock declined by 47% in a bit more than two months to eventually close at $2.50 on August 8 (point E).

The stock was oversold therefore it is considered as good opportunity to buy back the stock when it reaches a support level well indentified by the market. That’s why it has quickly bounced back until $3.09 (+23.6%) in one week but declined around $2.70 in the second fortnight of August. However there is a further bullish move possible.

The technical indicators that turned bullish on the rebound generated after point E remain well oriented. They are likely to convince investors that the bearish trend occurred between May and August (between points J and E) is definitely over. The RSI bottomed in the oversold zone but curved upward and crossed above its signal line. So did the MACD which is quite conservative as it avoids short-term false signals. They still show bullish signals.

What will be the next target?

A new attempt to breakout above the first intermediary resistance is possible as the price strongly jumped yesterday. This first resistance is the 23.6% Fibonacci ratio, where the recent rebound failed on August 15 (around $3.10).

If this first target is cleared, the next Fibonacci ratios will be the next short to medium-term objectives for the price action. Those levels are $3.35 and $3.60. On a longer-term perspective, the main target would be the upside of the existing trading channel, just below $4.5.

Rio Tinto (ASX:RIO) unveiled a monster profit yesterday. Half-year underlying earnings grew by 55% compared to the same period last year. The figure over at BHP for full-year growth was around 22%.

Is this a cannonball through the port bow of the SS BHP Tinto? Is the bid sinking?

Well, in the last week three things have happened. Rio has clearly been the better performer this year. The ACCC has shaken its finger at BHP for trying to corner the iron market. And Wayne Swan opened the front gate, allowing Chinalco to take an 11% overall blocking stake in Rio Tinto.

None of those things scream ‘merger’. And judging by the ratio of Rio to BHP shares, the market doesn’t think it’ll happen. Anything above 3.4 means investors see one new mega-miner on the horizon. Anything below means investors see two old mega-miners on the horizon.

We’re deep in the red zone. Deeper now that Gumshoe ACCC is on the case.

That raises one more question. What happens if the bid falls through? Does Rio’s share price collapse?

That was BHP’s latest suggestion in a string of marketing angles to keep the bid alive. I made you, Tinto. You need me. Dump me and your share price goes down too.

We’ll get to that issue further down. First let’s look at Rio’s report card.

There’s really only one thing to take notice of. Rio did better from the boom in iron ore contract prices than BHP. Iron made up over half of Rio’s underlying earnings for the first time.

If you buy a Rio share for $120, you’re paying $60 for an iron company and $60 for a diversified miner.

The iron domination is probably going to keep dominating. Rio’s planning to divest US$7 billion in assets this year. You can bet it’ll be holding on to its darling iron assets. And buying more, probably. Rio’s capital expenditure is at a record. The main target? Iron. Again.

And again, a lot of sectors had record production. Rio’s producing more iron ore, bauxite, alumina, aluminium, borates, titanium dioxide and thermal coal than ever. But the biggest driver of this year’s result was commodity price gains. Mostly in iron and coal.

This is not a financial recommendation. But if you need more iron in your diet, buy some Rio Tinto.

Now. What are the implications of all this?

One. Rio has enjoyed the iron boom more than BHP. If it keeps booming, that won’t change much. If it goes bust, Rio stands to lose a lot more.

Personally, we don’t see it going bust yet. That could be decades away. But Rio is leveraged now. It’ll gain more from Asia’s iron addiction. It’ll have worse withdrawal when it’s all over.

Two. Rio’s share price isn’t likely to collapse if the bid does. We’re not saying that it won’t happen. Anything is possible. The argument here is that BHP’s bid has inflated Rio’s shares past where they would otherwise be.

But consider the ‘before’ and ‘after’.

Before the bid, a dollar of Rio earnings cost $45. Today, it costs $23. One iron boom makes a big difference to earnings. But by that measure, Rio hasn’t inflated. It’s deflated.

The share price hasn’t kept pace with earnings. Slacker. Then again, most share prices haven’t.

On the whole, it was a less-than-inspiring week for merger enthusiasts. We still like BHP’s chances if it adds a little bit of cash to the deal.

Meanwhile, people are getting what they deserve, not what they expect. And it seems that the march of skeletons out of closets across Australia is still in full swing.

St George (ASX:SGB) was probably the least exposed to the initial shock-wave of the credit bust. But that doesn’t mean it indulged in it any less. Bank Number Five is now ruing a $458 million loan to Centro (ASX:CNP).

Last Friday the S&P/ASX 200 Metals and Mining index closed at 4,515.70. That’s 27% less than 3 months ago.

Until recently, as you know, the Index was on a long-term bullish trend. It started in March 2007 and was the backbone for regular rebounds after price falls. Despite a quick, false break on January 21 (point E), this support has been then tested and validated several times during the last 20 months (points A, B, C, and D on the chart).

But support broke on July 17.

That gives a fresh impulse to the bearish momentum. So we think the metals sector is going to get cheaper. Maybe you can start thinking about averaging down any entry prices for this sector in the next month or so. But we don’t think the bottom is in yet.

And as a result of the break, that grand old support immediately became a new resistance line. Two rebounds have already failed to clear it. Expect a further move downward before finding a new support baseline for a potential consolidation phase.

Aha. But here’s the fun part. Where’s that baseline going to kick in?

The indicators certainly aren’t bullish yet. The moving average crossovers configuration is still bearish for the near-term. The 10-day MA is moving well below the 30-day MA.

And the 14-day Relative Strength Index shows that the Index isn’t oversold yet either.

But we have no support line to go on anymore either. So if I were a trader (I am), and I had no support line to work with (I don’t)…what would I look for?

A key price level. Specifically, a previous high. Check out that graph again. There’s a key point at around 3,950 points.

This previous high was posted in March 2007 (point X). Once cleared, it became an immediate support point a few weeks later (point Y). This is also where the price rebounded in August last year (point B).

So…traders and investors…get your favourite mining ideas in order. The index isn’t quite there yet. But look for a bounce from that mark. It should get there in the next month or two.

Why the Next Six Months Will Be Your Best Chance to Buy Resources Since 2003

The resource bears took a few swipes yesterday, reader. This morning we read that the commodity boom is over.

It’s articles like this that are making companies like BHP cheap. It’s down 25% in a couple of months. And bears will make investing in commodity-based equities a good idea in the second half of the year. It’ll probably be the best opportunity you have to buy mining and energy stocks since 2003.

But buying resources is not as clear (or easy) as it once was, as you’ve probably found. And that article above isn’t just pessimistic. It’s utterly dismal. We felt like a pallbearer as we read.

“Demand from China is softening….the CRB Commodity Index fell 10% last month…gold will slump to $650 an ounce…”

Hey…we’re still locked up in our room with some sort of allergic reaction. But we’re not that feverish. Let’s unpack those comments.

China Shifts Gears to a Domestic Boom

“Demand from China is softening.”

Quite possibly true. China’s annual GDP is running at a rate of about 10% this month. That’s about 1.8% down on the high it hit last year. That means consumption has probably fallen off too.

But so has every country. It’s what happens in a credit crisis. You can put the drop in economic growth so far down to the shockwaves from America…not a fundamental demolition of Asian demand.

If you think that fall is a reason for dropping your Chinese-related investments, you automatically make an assumption. You assume that American spending is more important to China’s growth than Chinese spending.

That may have been true in the past. It won’t be in the future. China hasn’t yet accumulated the same income levels as Uncle Sam. But for every spender in the US, there are four in China. Add in India, and it’s more like eight.

So we don’t see a slowing China as the end of the boom this month. It’s more of a correction. Who knows? Maybe China needed this. It’s possible to grow too fast.

And looking at the 10% drop in commodity prices…well, that depends on your view of China. If you think it’s going down the toilet, be our guest and sell everything. If you think it’ll keep growing, commodities aren’t dropping. They’re getting cheaper.