The Chart du Jour
Not that long ago we made an attempt to pick a bottom in the CRB. We will be the first to admit that we were premature and wrong. Prices continued to slide through the Fibonacci support zones that we had initially targeted, and even after the World Trade Center disaster, the CRB has sagged yet again to new lows -- pulled lower in part by "weak economy fever" that has sent both oil and soft commodity prices lower over the past few days.
But we think the recent retracement in oil's price is likely misplaced. With our early-October cycle date for a momentum equity low now fast approaching, and our downside price objective for the Nasdaq Composite Index now getting closer at hand as well, worries about next year's weakness in the economy are likely becoming overblown. American airports may be empty for now, but our whole economy and our inelastic energy consumption are not going to stop on a dime. In addition, we believe that the prospect of ongoing military action that consumes huge amounts of fuel to move fleets and airplanes around the world, will remain very real. None of this even considers potential supply disruptions if battles in the Middle East really do materialize.
For trend followers, therefore, the recent pullback in oil and concomitant plunge to new lows in the CRB may be frustratingly deep, but we do not think these moves will be lasting.
Technically, we also spy yet another Fibonacci target zone just above 194.00 on the CRB Cash Index that looks like a nice "tight fit" on the longer-term CRB Cash chart below. If the CRB is this close to a major low (with the precious metals already headed higher), we also feel that it would be very improbable to have oil setting itself up for a major decline.
Overall, therefore, we're not bottom pickers in the equity market quite yet, but we are buyers of the commodity sector -- and will rebouble our positions if and when the CRB touches 194.10.
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