IS The CRB Index Rolling Over?

|
Includes: CRB, DIG, FXA, FXC, OIL
by: Marc Chandler

Summary

Price action of commodity prices is warning of the risk that the correction is over.

The price action over the next few sessions will clarify the outlook.

The price of oil is highly correlated to the index, as it is a large component.

This Great Graphic, created on Bloomberg, depicts the CRB Index, a basket of commodity prices. The technical picture has deteriorated, and the price action in the coming sessions is particularly important in determining outlook.

The CRB Index put in a double bottom. On January 20 and February 11 lows were set just below 155.00. The neckline of the double bottom was created in the rally between the two bottoms. It is found near 168.00. The measuring objective is found by rotating the pattern on its neckline. It is near 181.00. On March 18, the CRB Index made a high just below 179.00, just ahead of the 50% retracement objective of the decline since the mid-October 2015.

The CRB Index gapped lower on March 24 and has not filled the gap today. It is found between last Wednesday's low (~173.20 ) and last Thursday's high (~172.57). It had gapped higher on March 17 but filled the gap on the large sell-off from March 23. If that first gap had not been filled, it would have left a bearish island gap in its wake.

On the downside, there are two levels to monitor, that if penetrated would strength the bearish technical case. The first is the 20-day moving average (~171.30). The CRB index has not closed below this moving average for a little over a month. The second and more important level is around 169.50. A little shelf was created near there earlier this month. It corresponds to a 38.2% retracement of the rally since the February low.

Given the high correlation between crude oil and the CRB Index (over 0.9 on a 60-day percent change basis), it is not surprising that the oil futures price action is quite similar. The May light sweet contract is trading heavily today near $39 a barrel. It peaked on March 18 near $42.50. It is toying with the 20-day moving average just above $39.00. The $37.70-$38.00 area corresponds to a 38.2% retracement of its gains since February 11 and the low on March 15. A break would signal a move toward $36.60 and possibly $35.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.