Technically Speaking

Possible Bullish Turn in Commodity Sector

Source: DTN ProphetX

The US economy made it past the fiscal cliff, barely, sparking renewed buying interest by investors in a variety of market sectors early Wednesday morning (January 2, 2013). The DJIA is up an early 265 points, gold is up $18.50, and crude oil $1.70 higher. The latter two have the Continuous Commodity Index (CI.X) on the run, posting a gain of 6.66 points early Wednesday.

A look at the CI.X weekly chart offers commodity market bulls, including grain bulls, a new sense of hope following months of disappointment to close out 2012. After posting a new low and testing support near 550.47 Monday, the CI.X is in position to establish a key bullish reversal on its weekly chart if it can get above last week’s high of 562.76 and close higher for the week. Last week’s settlement was 557.37.

If the trend in the index has indeed turned up, in line with changes in trend seen in a number of key commodities (including gold, crude oil, soybeans, and possibly corn and wheat), initial resistance is pegged at 567.46. This marks the 33% retracement level of the previous downtrend from 598.65 through Monday’s low of 551.89. Beyond that is the 50% retracement level of 575.27, then the 67% retracement level of 583.08. If enough investor buying is seen in commodities it is possible the CI.X could see a full retracement back to its previous high, itself a test of major (long-term) resistance at the 50% retracement level of the downtrend from 691.09 through the low of 502.28.

A possible technical factor that could limit bullish enthusiasm is the failure of weekly stochastics to establish a bullish crossover below the oversold 20% level. Notice that major trend changes occur when weekly stochastic post crossovers above 80% or below 20%. This time around, the crossover could be occurring with the slower moving red line at roughly 24.6%. This would indicate the secondary (intermediate-term, reflected on the weekly chart) trend has turned sideways to up rather than strictly up. This would seem to confirm the idea of a larger retracement, possibly back to the previous high (100% retracement) but not much beyond that.

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