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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, August 04, 2009

Commodities Market

The CRB composite closed around 267 today, which puts it just
slightly ahead of initial long term resistance of 265 (dates back
to the latter 1970's). Interestingly, even if the CRB is poised to run
much higher, it may well test 265 as support before moving on.

Historically, commodities are most sensitive to liquidity and
monetary policy conditions and are likely to rise as central bankers
ease monetary policy. Commodities are also sensitive to a basic shift
in direction of the leading indicators, and have been particularly so
this year, accelerating when weekly leading indicator data reversed
positively during 3/09. All sensible enough.

The action of the CRB so far in 2009 has been somewhat unusual
in that the dramatic rise in the petrol sector, which has come early
in the new liquidity cycle, has provided it with a strong tailwind. So,
the CRB is perhaps a bit ahead of itself, to the extent that the oil
price has lifted off so early.

The broad commodites market has been deeply oversold over much
of the past 9 months, but with the rally since 3/09, it has tended to
veer toward modest short term overboughts. However, we have yet
to see the sorts of surges that signal too racy a market.

The potential for the CRB is to move higher in the context of an
expected continuation of monetary ease. But I would note that since
the weekly economic lead indicators have jumped so sharply, the CRB
could be vulnerable to moderation in the dramatic progress of these
indicators (there is some overlap between the two series).

I hope this post might prove timely in that the market is just a little
above long term initial resistance, a factor most well seasoned traders
will have in mind.

Recent CRB action here.

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