Reuters/Jefferies CRB Total Return Index Fails To “Breakout”

By Jim Donnelly, Olson Global Markets

With the Federal Reserve’s latest monetary stimulus plans known for more than a week, the expected effect of Fed Chairman Ben Bernanke’s unprecedented “QE infinity” did help left equity and precious metals prices last week.  Interestingly, however, energy prices failed to “follow through” and declined instead as did the Reuters/Jefferies CRB Total Return Index, which had been on the “verge” of breaking above primary downtrend resistance at 321.26.

Overbought conditions on weekly charts might help explain the failure for a “breakout” to occur at this time. Perhaps a “sell on the news” reaction to the Fed’s plans was a knee-jerk impediment as well. Whatever the reasons were, an extension to last week’s CRB pullback appears likely in the weeks just ahead. Encouraging such an extension lower could be a “wait and see” posture adopted by investors in front of the U.S. presidential election. Increasing concerns over the fiscal cliff, rising tensions in the Middle East and closer scrutiny of Mario Draghi’s conditional bond buying strategy remain unsettling factors as well.

From a technical point-of-view, the CRB index’s decline might soon result in a test key trend line support at the 296 level. If the CRB index holds at 296, and then begins to reverse to the upside, visions of a mid-market “reverse Head & Shoulders” pattern could unfold. In that case, the 321-322 area would be seen as “neckline” resistance with an objective sitting near 375.

On the other hand, if 296 fails to hold as support, a new “leg” lower, perhaps down to a test of key “cross” trend support near 270 could result instead. That, of course, would likely conjure up renewed worries over the prospect of “deflation”.

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