Commodities Weekly Analysis

We’ve been looking for a breakout of this consolidation and we finally got it later in the week. Stocks broke below their lows and commodities followed along. This looks like another leg lower for stocks and possibly commodities. The CRB Index hit a new low, but many of the commodities are holding up fairly well if you look at individual charts. The commodity indexes are heavily weighted with the energy commodities and they were destroyed during the week.

The grains were also hit very hard during the week. Corn, soybeans and wheat are getting close to being in the normal price ranges of the last several years. Actually, most commodities are getting back to this point and if the commodity markets see one more leg lower, this could mark a major bottom.

I certainly believe this will be a prolonged and deep recession and I don’t see a quick reversal in commodities or stocks. Most commodities are drastically oversold and they will likely have a very sharp rally soon, but I don’t see a long-term “V” reversal. I do think China will lead the world out of a recession and not the U.S. Keep a close eye on their stock markets.

If the U.S. dollar were to peak and begin a downtrend, then I would absolutely call a bottom in commodities. You can see some commodities like cotton, cocoa and hogs held really well this week and didn’t hit new lows. That is a good sign. Also, gold broke above the $750-775 resistance and should hit $825 very soon. The recession will take its toll on many of the industrial commodities, but many of the staple commodities are very near long-term value levels.