Where will commodity prices go from here? Well, just as all asset classes moved up in a simultaneous bull market from 2003 to 2007, we now have the possibility of all asset classes—equities, property, bonds, and commodities—moving down in a simultaneous bear market. It could be protracted, global, and unavoidable.
We asked our technical analyst Gabriel Andre to take a look at the CRB Index and tell us what he saw. He produced the chart below.
What does the chart tell us? Gabriel says that, "The CRB index is experiencing a correction that should go further...This downturn corrects the bullish trend started in last August. Between August 22 last year and July 3 this year (points A and B on the chart), the index jumped by nearly 57%."
"The bearish momentum is likely to drive the CRB index lower," Gabriel adds. "The 75-day moving average was a good support to the bullish trend. The price action crossed below it on July 18. It was also corresponding to the 23.6% Fibonacci level. This breakout is a clear bearish signal. Moreover the index is not yet oversold."
Well. None of that is good news for resource bulls. It suggests that there is a capitulation low yet to be put in. That's the point at which even resource investors begin to doubt the wisdom of being long. The market will shake out anyone without conviction between now and then.
How bad can things get? We've read the work of Dr. Steven Keen from the University of Western Sydney over the last few months. He's one of the best analysts of Australia's debt problems that we've seen. You'll find some of his latest work here, "How Much Worse Can the Stock Market Get? A Lot Worse".
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.