Thursday, July 9, 2015

CRB Commodity Index Weekly Chart

Lots of traders are concerned over commodities. Oil, iron ore and copper have tanked. The consensus views the commodity pull back as a soft spot but the weakness likely indicates deflationary forces in play and a global economic slowdown moving forward. The CRB peaked in 2014 and received the smack down from the rising wedge, overbot conditions and neggie d. The green lines show a falling wedge, oversold conditions and positive divergence creating the bounce in March that Keystone highlighted back then.

The move higher does not have a lot of gusto. The MACD line is long and strong but other indicators are weak and bleak. This equates to price staggering sideways through the 210-230 range for months and perhaps a year or two ahead. Price is stabilizing, however, and not expected to take out the 210 lows. If that happens, the US is firmly headed into a Great Depression scenario and the CRB would plummet to 180 and lower. The W pattern bottom would be expected to play out overtime with price targeting 250-ish but this may take many months and perhaps not until 2016 or 2017 to get there.

The CRB is used in Keystone's Inflation-Deflation Indicator (type deflation in the search box at the right to bring up prior posts that show Keystone's deflation chart; this information will be updated as time moves along). CRB divided by the 10-year Treasury note price is 215.26/98.9063 = 2.18. Under 2.9 indicates ongoing deflation in the US. Disinflation is at 2.9-3.0. Inflationists and deflationists fight it out between 3 and 3.7. Above 3.7 is inflation and above 4 is hyperinflation. The hyperiinflation will hit when the velocity of money accelerates (banks lend more money and it multiplies into the economy) but this is not likely for 2 to 5 more years. Deflation keeps biting off chunks of flesh since it was cheated from its meal back in 2009 when the central bankers started their obscene Keynesian experiment now ongoing for six years. 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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