Technically Speaking
Darin Newsom DTN Senior Analyst

Saturday 09/15/12

Commodities Could be Nearing a Top

Friday's blog talked about the possibility of the US dollar index establishing a bottom in the near future, meaning the index could soon move into an uptrend. Given that there is a negative correlation of approximately 81% (weekly chart) between the US dollar index and the continuous commodity index (index that represents the commodity sector in general), a bullish turn in the dollar could lead to a bearish turn in commodities.

Source: DTN ProphetX

Does the continuous commodity index weekly chart agree? The recent rally has the index priced just above resistance at 596.69, a level that marks the 50% retracement of the previous downtrend from 691.09 through the low of 502.28. This past week saw the index post a high of 598.65, falling in between resistance and the 2012 high of 605.48 established the week of February 27.

Weekly stochastics show the index to be in an overbought situation, with both the faster moving blue line and slower moving red line above the 80% level. Many of the markets that make up the index (e.g. corn, soybeans, gold, crude oil, heating oil, etc.) are in the same situation with weekly stochastics also above 80%. At the same time, a number of these markets are beginning to see reductions in their noncommercial net-long futures position, as reported in this past Friday's CFTC Commitments of Traders report.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.

Posted at 8:52AM CDT 09/15/12 by Darin Newsom
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