Viewing the Commodity CRB Index in 2008

Jan 6, 2009: 3:54 PM CST

Let’s step back and see the full 2008 performance of the CRB Commodity Index and note its rapid ascension and stunning fall that marked an amazing year for the history books.

CRB Index Daily Chart:

Let’s focus only on the simplest technical structure for a moment – moving average analysis.

Generally, in an uptrend, price will retrace to the rising 20 or perhaps 50 period EMA, find support, and then rally for a new price high.  It is at these points that a low-risk, high probably ‘edge’ producing trade can be made, given that a stop is placed just beneath the average and your target is perhaps the most recent swing high or just beyond.  Continue buying until you are stopped out or the moving averages themselves cross.

This worked at least four times in 2008 to the upside until price definitively closed beneath the 20 and 50 day EMAs and then the averages themselves crossed in July.  It was then time to ‘flip’ the strategy and short any rallies and place a stop above the 50 EMA.  One could have held a position or ‘core’ trade this way.  Look at how fluidly the strategy worked for 2008.

That being said, moving average orientation also helps give us clues as to price structure and expectations.  Of course, more complex ‘technicals’ can further add (or erode) edge and potentially mitigate risk with the possibility of larger profits, but I would argue it’s best to start with the simple structures (and analysis) and move upward from there.

Price has been in a persistent downtrend since July 2008 – price spent roughly five months rising and seven months falling (March was a down-month as well).  We began 2008 with the spectre of “Inflation” dominating the headlines and entered 2009 worrying about “Deflation.”  It’s strange what a year can do to expectations.

Nevertheless, it would appear we’re entering a possible price reversal, as evidenced by price finally breaching the 20 day EMA to the upside and the emergence of a multi-swing positive momentum divergence into new lows.  In addition, it seems we could be in a “Wave 4” Elliott correction phase to the upside, though if that were the case, it would imply new lows are eventually yet to come.

Continue watching the CRB Index closely – along with crude oil, gold, and other agricultural commodities – and be prepared for the possibility of an official trend change that could be in the works – however temporary the trend change may be.

Corey Rosenbloom
Afraid to Trade.com

7 Comments

7 Responses to “Viewing the Commodity CRB Index in 2008”

  1. toad37 Says:

    I have been watching the commodities closely for signs to go short. Timely post, thanks Corey.

    I did put on some small short plays today. I’m expecting a small pullback, but you can see that the market has a pretty strong underlying bid lately. I won’t be greedy by any means.

  2. Anonymous Says:

    Corey, check out $COMPQ http://f8analysis.blogspot.com/

    -Tahir

  3. Anonymous Says:

    Hi Corey,

    Thank you for such a great site with great technical analysis information.

    The question that I have with the CRB index above is what do you use as a count to Wave 3?

    Brandon

  4. Corey Rosenbloom Says:

    Toad,

    I’d be careful about shorting most commodities or related ETFs here. We’re overdue for a rally, so use the rally to ‘get short’ if need be but it seems the risk now is to the short side and odds favor higher prices at least short-term. All could change quickly though.

  5. Corey Rosenbloom Says:

    Tahir,

    I like your long-term perspective. I often miss that while trading short-term. It’s a significant break of a valid trendline and you’re right to note its significance.

  6. Corey Rosenbloom Says:

    Brandon,

    I debated whether or not to draw in the waves and perhaps I’ll tailor a special post with them.

    Wave 1 ended in August near 380.
    2 ended at the 2nd red arrow at 400.
    3 is an extended wave that ended (perhaps) in December at 210 and now we’re perhaps in the 4th wave up. The “Third of three” was an extended ‘thrust’ as well.

  7. Anonymous Says:

    Thank you for the respond Corey.

    Brandon