Chris Kimble writes:

The CRB index had a huge rally from 2002 to 2008, followed by an decline over 50%.

The 2009/10 rally took the CRB index back to its “50% Retracement level” as well as two key resistance levels, at the same time.

Is a “Head & Shoulders” pattern at hand as well?

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Was 2010 a rally in a bear market for commodities

click for ginormous chart

Category: Commodities, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Was 2010 Commodity a Rally in a Bear Market ?”

  1. mbelardes says:

    I think the head and shoulders would have to depend entirely on whether or not a double dip recession is at hand.

    The last 3 years have shown China the importance of developing their domestic economy and they are taking steps tp grow that. I bet many of the other developing nations learned the same message once the US went in freefall and stopped importing everything.

    IF the economy in the US is slowly picking up steam and IF the per capita GDP keeps rising in nations like China, India and Latin America then the demand for scarce commodities (and sometimes controlled/artificial scarcity) could have us see a megaboom in commodities.

    It takes how long to grow wheat? How long to raise cattle for slaughter? How long for the earth to produce oil and materials?

    Short of negative population growth or some huge calamity, the macro oulook on commodity fundamentals should point to a lot of upside.

    But this chart is very interesting when you point to the head and shoulders technical pattern.

  2. godot10 says:

    That CRB chart is nonsense because of the rejigging of the index in 2005 which radically changed how the CRB was calculated. Post-2005, the CRB is essentially an energy index.

    The CCI, the continuous commodity index is the pre-2005 CRB index, and is much more valid than the CRB.

    The CCI is currently tiptoeing above the 2008 highs. And the question is whether the CCI will double top or not….i.e. will it make a significant breakthrough above the 2008 high.

  3. market_disciple says:

    The H&S pattern is interesting, but in my humble opinion that is not as relevant as the Fibonacci retracement lines (305, 335, and 370). The commodity rally in 2010 was probably driven by a weak dollar and precious metals as a reserve currency.

    It looks like the gold & silver rally is done for now. For the next few months, I’d be pleasantly surprised to see gold breaking out higher from $1450 and silver from $32. The only catalyst for them to move higher would probably be if 1) European debt crisis gets worse (fear) and ECB is forced to print more money and/or 2) US engages in another quantitative easing.

    The strengthening dollar with the rising equity market seems to suggest economic recovery in 2011 (Or perhaps it’s just earning season play?). It looks like the money is rotating from precious metals (fear) to more industrial commodities such as copper and oil (Economic recovery). I also remain bullish on grains for the next few months.

    What makes me a bit nervous is the market seems to be overbought. I’m just getting ready to convert to cash when that 20-25% correction BR predicts would take place.

  4. cognos says:

    godot10 – The CCI is an equal weighted index. This is pretty moronic. So you think sugar, cocoa are the same weight as steel and oil.

    Interesting macro theory.

    I think the CRB is a much better index.

  5. Arequipa01 says:

    Some may find this interesting:

    http://www.boingboing.net/2011/01/04/the-price-of-everyth.html

    The Price of Everything

    “According to Eduardo Porter of The New York Times editorial board, prices are more interesting than most of us realize. And the prices that never appear on a price tag are the most fascinating of all. In his new book The Price of Everything: Solving the Mystery of Why We Pay What We Do (2010, Portfolio), Porter explores the surprising ways prices affect every aspect of our lives, including where we live, who we marry, how many kids we have, and even how religious we are.”

    from BoingBoing.

  6. Arequipa01 says:

    Also, IncaKolaNews has a comment on gold that may provide some food for thought (it’s the second post):

    http://incakolanews.blogspot.com/

    Zinc, anyone?

  7. Arequipa01 says:

    Eduardo Porter is being interviewed on Bloomie right now (1:55 pm).

  8. DebbieSmith says:

    Most analysts pretty much ignore the growing impact of India’s economy on commodities, in particular, oil.

    Growing demand from both China and India will be what drives the oil market in the coming decades, especially since both countries rely heavily on imported oil to keep their economies afloat. In the case of the less industrialized and developed nation of India, their oil demand on a per capita level is less than 5 percent of the U.S. per capita demand. Keeping in mind that over 400 million residents of India have no access to electricity at this point, should growing demand for oil result in per capita consumption that approaches that of China (India is now at 42% of China’s per capita demand), they will require an additional 4.4 million BOPD. If that doesn’t put a strain on world oil supply and result in upward pressure on prices, growing demand in China certainly will.

    

Here is an examination of the supply/demand issues facing India:



    http://viableopposition.blogspot.com/2010/09/india-quiet-energy-elephant.html

  9. rip says:

    Commodities will be the story for 2011.

    There is already a major mismatch between the fraudulent “core CPI” and commodities.

    When retail prices catch up and oil hits $4, expect repercussions leading to nothing more than increased WS bonuses.

    Should be clear the CFTC will not act as they should.

    Just more speculators starving little guys for the mega-million bonuses.

  10. machinehead says:

    ‘godot10 – The CCI is an equal weighted index. This is pretty moronic. So you think sugar, cocoa are the same weight as steel and oil.’

    An equal-weighted commodity index makes more sense for individual traders who don’t bump up against reporting or position limits, just as the equal-weighted S&P can be more appropriate for individual investors, not to mention outperforming its cap-weighted counterpart.

    But don’t take my word for it. S&P’s Diversified Trend Indicator (DTI), a licensed product developed in conjunction with veteran trader Victor Sperandeo, weights energy at 18.75% — 1.10% higher than its 17.65% weighting in the CCI. If this is ‘moronic’ (despite the superb back-tested [and uncorrelated with equities] performance of the DTI), by do means straighten out these losers!

    Just to emphasize the topicality of the CCI, the United Nations Food and Agriculture Organization reported today that their index of 55 food commodities broke out to a record high in December — the same month the CCI broke out. CCI 1, CRB zero.

    http://noir.bloomberg.com/apps/news?pid=20601087&sid=auxwKmN9dWuw&pos=1

    Oh, and kindly show us the numerical weighting of ‘steel’ in any commodity index. We clueless newbies await your expert advice!

  11. Jeff Hook says:

    Chris Kimble assures his viewers/readers that they need only rely on “The Power of the Pattern.” Readers of this blog who are technically oriented may notice that Chris’ charts are VERY simplified. They usually only include prices and Chris’ trend lines. He doesn’t include indicators. He doesn’t even include grid lines. He often draws his trend lines *through* major price points which aren’t consistent with his interpretations, rather than in correlation with those price points, but those details are less important in this case than whether this chart even shows a “Head and Shoulders” pattern. I don’t think it does.

    Does everyone here (et tu, Barry?!) think a “head and shoulders” pattern is simply a series of any three “bumps” in which the left and right “bumps” are more or less at the same height and the center “bump” is higher? (Is an “inverse head and shoulders pattern” merely an “upside down version” of that same series?) I don’t think so! Head and shoulders patterns are defined by their necklines. This supposed “head and shoulders” pattern fails that test. “Power of the Pattern”? Hmmm…

    I believe a head and shoulder pattern is a trend-reversal pattern. An “upright” or “non-inverted” H&S pattern occurs at the top of a sustained uptrend, and suggests a possible imminent reversal of the advance, which may be followed by a sustained downtrend. An “inverse” H&S pattern occurs at the bottom of a sustained downtrend, and suggests a possible imminent reversal of the decline, which may be followed by a sustained uptrend.

    All H&S patterns are bounded by their “necklines.” The necklines also serve as the patterns’ signal lines. The patterns develop above or below their necklines and, only when the patterns have formed completely, the patterns then signal possible trend reversals if prices cross the necklines.

    “Upright” or “non-inverted” H&S patterns develop ABOVE their necklines and the patterns are thought to give their signals only when the left shoulder, the head, and the right shoulder have all developed ABOVE the neckline. The three features of the patterns are formed when the price successively declines TO the neckline and then reverses there; the neckline ISN’T CROSSED *during* the formation of the pattern. In fact, the downward-crossing of the neckline on the descent from the right side of the right shoulder is thought to be the bearish signal which is given by the upright H&S pattern.

    “Inverse” H&S patterns develop BELOW their necklines and the patterns are thought to give their signals only when the left shoulder, the head, and the right shoulder have all developed BELOW the neckline. The three features of the patterns are formed when the price successively rises TO the neckline and then reverses there; the neckline ISN’T CROSSED *during* the formation of the pattern. In fact, the upward-crossing of the neckline on the ascent from the right side of the right shoulder is thought to be the bullish signal which is given by the inverse H&S pattern.

    The 50% Fibonacci retracement line which is drawn horizontally across the center of the “Ginormous” whipsaw price reversal which is shown in this chart is NOT the neckline of a H&S pattern. H&S necklines AREN’T crossed by price declines or by price rises which occur during the development of the three component parts of the pattern (left shoulder, head, and right shoulder). The neckline is the pattern’s boundary or signal line. The pattern only signals a trend reversal (or a possible trend reversal…) when the neckline is crossed AFTER the pattern has been fully formed.

    Are the lows of 2007 and 2010 connected by a (descending) H&S neckline? No. That’s not a neckline; the right shoulder of the supposed H&S pattern didn’t form at that line.

    THIS CHART *DOESN’T* SHOW A HEAD AND SHOULDERS PATTERN!