Wednesday, July 16, 2014

CRB Weekly Chart Long-Term Sideways Channel

The 3-week drop in the CRB from 313 down to 295 is a near -6% collapse. The inflation talk will subside as the chart drops away. Corn and wheat prices have plummeted. The premium out of crude oil has dropped. Gold remains challenged teasing the 1300 level this morning. Food inflation is the most noticed by consumers and typically ebbs and flows with global weather events. Lower grain prices will lead to lower meat prices over time. The beef herds that were culled one year ago due to the droughts are being rebuilt and should be at near full strength again later this year into early next year so beef prices will moderate in the months ahead.

PPI comes in a bit hotter than expected this morning so this will fuel the inflation talk and the need for the Fed to move up the projections for the first rate hike. Keystone agrees with Fed Chair Yellen, however, in that inflation is not a threat. Wages are stagnant and inflation will not occur until wages rise. The UK data this morning shows very encouraging jobs numbers but the fly in the ointment is a drop in wages which ruins any joy.

The green box shows the big jump in commodities this year leading into the food inflation. The overbot conditions, rising wedge pattern and negative divergence (red liens) create the spank down off the top. The indicators remain weak and bleak (negatively sloping) so lower lows in price are anticipated after any dead-cat bounce would occur. A bounce off the 50-week MA at 293.30 is a reasonable expectation. The drop in commodities in 2013 (red arrow) reflecting less of a need for raw materials should have led to a weaker stock market but it did not. There is no clearer proof of how the central bankers are the market. The obscene ongoing QE stimulus that continues today is what creates the all-time stock market highs.

Keystone's Inflation-Deflation Indicator uses the CRB and the 10-year Treasury price as a gauge. CRB/10-yr price = 296.02/99.4219 = 2.98 signaling Disinflation. Under 2.9 is Deflation. Between 2.9 and 3.0 is Disinflation. Between 3.0 and 3.7 inflationists and deflationists fight it out in no man's land. Above 3.7 is Inflation.

The chart hint at continued sideways behavior for the weeks and months ahead. In a strong global economy, the CRB should be moving to the top right instead of the bottom right of the chart. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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