Red-Hot Resources

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Tuesday, January 30, 2007

Chart Support for CRB?

Every now and then it’s good to look at broad commodity indices and see if we’re in bull or bear market territory.

There’s no doubt that the energy-heavy CRB Index broke its uptrend months ago. Since then, it’s either in a bear market (if you listen to the bears) or pulling back to support (so sez the bulls).
The lines on this chart are Fibonacci Retracement numbers, i.e., common support levels when a stock or index retraces part of its big move. You can see that the energy-heavy CRB may be finding support on a monthly chart, though it’s too early to tell.

The problem with Fib numbers is choosing the starting point is open to interpretation. For example, here’s a weekly chart of the CRB starting from its breakout of its range in 2003 …
This weekly chart, using the 2003 breakout as a starting point, finds the CRB at make-or-break support. It has already retraced 62% of its big bull weekly move on the chart – any lower and we’d be in definite bear territory.

On the other hand, this level is a GREAT place for a bounce. And on the other hand (three hands –
the Gripping Hand), many people would say the monthly chart over-rules the weekly chart.

One thing is for sure – the CRB is energy-heavy. If you use an equally balanced commodities index, the CCI, commodities are STILL in a straight-line uptrend.

Man, that chart is bullish! I wouldn't want to bet against it.


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