There is a bit of ominous information for the Stock Market in terms of the recent non-stop rally in the $CRB Commodities Index that occurred both before and after the September 18^th US Federal Reserve rate cut.

The Federal Reserve is vigilant in its campaign against inflation, and rising commodities prices are often used as a semi-indicator of inflationary pressures.

Let’s look at what happened in the $CRB Index (Commodities Index) following (and preceding) the Rate Cut:

The Index has rallied from its August 20^th (recent) low of $300 to the current high just under $335.

Remember that inflationary pressures often cause the Federal Reserve to RAISE interest rates to choke off some of the demand that causes these rises. Under normal circumstances, the Fed is effective at keeping inflation within its comfort zone of 2%.

Recall – how could you have forgotten – that the Federal Reserve CUT Interest Rates at their last meeting.

It’s not a good sign that the Commodities Index is making new price AND new momentum highs on the daily chart.

Let’s see if we get relief from the weekly chart:

Alas, we are not making new price or new momentum highs on the weekly chart, but recall that short-term momentum leads long-term momentum.

In addition, we have had a bullish crossover in the moving averages, are above the upper Bollinger Band (bullish), and price has broken out from consolidation that began a year ago.

The Index is in a confirmed uptrend, and we expect to see a pattern of higher highs and higher lows.

The Index has made a new momentum high greater than that since May 2006.

What could be causing these suddenly increased prices?

Cotton has moved from $58 to $67 in September alone:

Frozen Concentrated Orange Juice has risen from $112 to $131 in September alone:

Wheat has risen from $848 to $960 (now $940) since September 20^th alone!

All these charts are continuous futures contracts on TradeStation. All examples are indicative of underlying strength in the Commodities markets.

Crude Oil (not shown) has reached $81 in the last few days.

Gold has extended from $660 on August 18^th to $750 currently.

My guess is that the Federal Reserve is not entirely happy with the recent developments.

Oh, meanwhile, while commodities (and the stock market) have been rising, the value of your US Dollars have continued their descent into ‘new low’ territory:

All these variables tie together in a method that is far beyond this blog post.

Please be careful out there – and look beyond the obvious.

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