Technical Speculator: Renewed Strength for CommoditiesBy Donald Dony, The Technical Speculator2007-02-08 08:43:05 The corrective phase in natural resources is gradually coming to an end. Prices in base metals, gold, silver and energy have been finding support in January and early February as the first strong pull back in the secular commodities bull market completes. The CRB Index (Chart 1) is finding good support at the 290 level. The basing pattern that is developing between 290-320 will continue throughout February, March and April as the change in trend from down to up unfolds. This commodity index can be expected to start trending higher early in the second quarter. The beginning of this move will be when the index trades above the resistance level of 320. Gold and silver sector (Chart 2) also illustrates a similar pattern. The consolidation from May 2006 of the Philadelphia Gold/Silver Index is slowly changing to an upward trend as greater demand comes into the precious metals market. This group is expected to advance throughout late February and into March up to the 160 resistance level. The Canadian Energy Index (Chart 3) is finding solid support at the 300 line during its final basing phase. Oil has strengthened dramatically from recent lows at $49 to current prices close to $60. This turn around in demand for the commodity has also brought renewed buying into the energy sector. This group is anticipated to climb to 380 by March. Base metals and mining stocks have proven their resilient during the commodity correction. While other commodity sectors have retreated, the S&P/TSX Mining Index has progressively scaled higher. Ongoing price support in base metals indicates continuous global demand for raw materials which points to economic growth and not to cooling economies. In the lower portion of Chart 4, the main trading cycle for the Mining index is nearing a major low by mid-February and should start trending upward in the second half of the month and into March. INTERMARKET PERSPECTIVE: Strengthening commodity prices in early 2007 will be reflected in global indexes that are more weighted to raw materials. The TSE Composite, Australias All Ordinaries, Brazils Bovespa, Amex and Mexicos IPC are several indexes that will benefit from improvement in natural resource prices. Increasing commodity prices also indicates simmering global inflationary pressures which eventually will cause interest rates to start climbing again and bonds to decline. MY CONCLUSION: Commodities are a leading indicator on economic expansion. They reflect anticipated growth by 6-9 months. The current basing pattern of the CRB Index suggests that the down trend of commodities is complete and a gradual reversal can be expected by the 2nd quarter. Your comments are always welcomed.
