CRB Bottoming?

You know, it is really funny how everyone is panicking in the markets based on the huge moves in the bond, commodity, FX and equity markets. In stocks, well that story has been beaten into the ground. In terms of the FX markets, the Euro collapsed sending many currency traders, who follow ranges to the shower. In the rate markets, the long bond rallied significantly yesterday and gave back some today (I shorted it). What each of these markets behaviors have in common is this: Investor panic. Now in terms of commodities, while the collapse in the CRB has not helped things in the financial markets, it was not completely unsurprising either. The simple reason: What goes up fast in commodities, unusually comes down harder - just ask those in the bean and oil markets!

So as I reviewed my charts for the weekend, two charts really came to mind. First, the CRB is right at long term support and what was the bottom of a trading range in the early part of the 1990's. Gold has bounced off support that the market created over the past year around 670. It is my belief that the gold market leads the CRB so essentially, if gold sniffs inflation, it will be the first to rally and then the commodity sector, measured using the CRB, follows suit. Thus, the move in gold at the moment, fancy reversal it appears, could be the signal that the commodity sell off is about to abate and rallies in cotton, oil and wheat could be forthcoming in the weeks ahead.

Now this may be nothing. It may just be a bump in the road. However, I am watching this closely for a couple of reasons. First, if the CRB jumps, that means global demand is coming back online. How far these commodities move depends on global demand. A spike higher means people have come back to the table. A gentle move higher means less people are partaking in the bounce and do not believe it. Thus, as I will discuss over the weekend in regards to the S&P, Monday and next week in general, will be very key for the financial markets and a chance of a major 25% rally into year end.

With that said, if I were a betting man (I trade futures which is probably something to acknowledge), I would say that the gold market finds it way up to the 850 level and the CRB bounces off long term support at 230. From here I am looking for 257 over the next 3 to 6 months. We'll see if that forecast holds. Good night.