Sunday, April 8, 2012

Commodity Prices Sag; More Downside Likely

Looks like no shortage surprise surprise! Aivars Lode thanks Ted for the Olson update.

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.

Jim Donnelly, Olson Global Markets

No comments:

Post a Comment