CRB Total Return Index (CRB)

Commodity Prices Test Key Support; Rebound Likely

Posted in CRB Total Return Index (CRB) on June 18th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With deeply oversold conditions now present on weekly charts, the Reuters/Jefferies CRB Total Return Index (CRB) is testing key “cross” trend line support at 266.99, and is likely to rebound. The last time weekly stochastic studies were as low as they currently are, was in December 2008, three months before both commodity and equity prices eventually bottomed out. From its March 2009 low of 200.16, the CRB index staged an impressive 29-month rebound and scored a 170.56 point gain to 370.72, representing an 85.2% jump.

Although the 2008-2009 selloff in commodity prices was heavily influenced by the unwinding of highly levered commodity futures positions from the likes of Lehman Brothers, the current drop in commodity prices appears to be a result of a global economic slowdown aided by austerity measures implemented inEurope. In turn, that has handcuffed many European banks by the need to allocate reserves against potential loan losses.

In the near-term, the decision by European authorities to come to the aid of the Spanish banking system with an injection of a whopping 100 Billion Euros (or roughly $125 Billion USD) should, in theory, stem the “run on the banks” in Spain, as well as the selloff in commodity prices in general, with the “contagion” effect put off to a later date.

In turn, this maneuver should lift the CRB Total Return Index over the next few weeks or months. That being said, this weekend’s Spanish bank rescue does not address the underlying problems that caused the creation of a mountain of bad debts that have restricted global economic growth. Nevertheless, deeply oversold conditions on the weekly chart of the CRB index combined with this weekend’s move to help Spain’s banks should provide a footing for commodity prices over the short-to-intermediate term horizon.

Commodity Prices Sag; More Downside Likely

Posted in CRB Total Return Index (CRB) on April 12th, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With a number of technical oscillators on weekly charts bearishly positioned, the Reuters/Jefferies CRB Total Return Index continued to slip last week, extending a decline that originated in late February. Natural gas prices have led the path lower and have proved to be the weakest. Despite oversold conditions and a reduction in drilling rigs from 886 a year ago to 647 now, some observers predict that sub $2 prices will arrive soon. In contrast, gasoline prices have increased steadily and are now at uncomfortable levels. Nevertheless, the notion of rising commodity prices has been waning in recent weeks due to diminished expectations for another round of quantitative easing (QE). In turn, this has resulted in lower precious metal prices as well as lower prices of copper, nickel and aluminum.

A number of grain charts, including soybean, wheat and corn, also suggest that a correction to lower levels appears likely over the months just ahead.

Friday’s weaker-than-expected employment data, however, could revive the idea that QE is not entirely off the table. Increased signs of a more pronounced decline in global growth (particularly in the Euro zone and China) might also raise the prospect of more QE in the months just ahead.

For now, the Reuters/Jefferies CRB Total Return Index appears to be aimed for a test of key “cross” trend line support located at the 293.50 level. If that level fails to hold as support, however, the worry would be that a solid extension to the downside could result. While troublesome for commodity producers and farmers, such a break would be very positive news for consumers as well as for companies who are large commodity users. That being said, it is worth keeping a sharp eye on the 293.50 level.