Just When You Thought the Commodity Bull Stumbled

Apr 11, 2008: 12:08 PM CST

Commodity prices, as measured by the CRB Index, staged an impressive recovery after it seemed all hopes were lost on the shorter timeframes. Actually, in the grand scheme of the weekly chart, it was just a simple, elegant pullback.

Notice how the ‘collapse’ as some called it of March was just a mere pullback against the steepness of the weekly trend. Stocks in strong uptrends often find key support about their rising 20 period moving averages, just as this example demonstrates.

No, the commodity bull is not dead yet. Commodity prices are creeping ever so slightly higher, raising renewed fears of inflation and causing potential economic uncertainty as prices for goods and services are potentially on the rise as well.

Let’s look at the daily chart to see how dual time frame analysis is necessary to capture the larger picture:

Price has recovered back above its 20 and 50 period moving averages, and there was no crossover (which would have been a long-term sell signal). Instead, price has found support after forming a triangle consolidation pattern between the key averages.

Pullbacks are normal in strong uptrends, and actually give traders a clean entry for those who are nimble enough to recognize them.

Keep an eye on commodity prices to broaden your awareness of intermarket relationships.

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