Commodities Are Starting an Upward Trend Again

By: Donald_W_Dony

KEY POINTS:
• CRB Index breaks through key resistance level of 320; stronger commodity market in second half of 2007
• Oil nearing annual top, as resistance above $75 builds
• Natural gas strengthens in August; bottom at $5.30
• Copper prices continue to increase into September; $4.00 is target
• Nickel finds support at $40.00; improving in 3rd quarter back to May high
• U.S. dollar could break key support of $0.80 in August; gold’s growth set to rise moderately on new weakness

Well, it is finally here.
The crossing of the 320 line for the Commodities Research Bureau (CRB) Index has been a long time coming. It is an important event, because this line in the sand separates a declining commodities market from a rising one. I have been indicating, for the last two months, that this development would occur. Natural-resource prices have been under increasing upward pressure from global demand since January 2007, but this recent action confirms the secular bull market in commodities is back and rolling higher.

First target is 355
In Chart 1 of the CRB Index, we see an index that has declined by more than 19% from the peak in May 2006, to a low in January 2007. Perhaps, as importantly, May also marked the top of the global stock market’s four-year business cycle. Its short bear market correction and subsequent recovery fuelled a new stage of economic expansion. Commodities lagged behind the stock markets, from a relative-strength perspective. This is due mainly to the time period that world economies need to pick up the pace again, just as they did during the last (i.e., 2002-to- 2006) business cycle.

The CRB Index attempted to cross the 320 level many times in 2007, but without success. World demand for commodity prices, though strengthening, had simply not recovered significantly until mid-year.

But what happens, moving forward?

First, we know that commodities move with the expanding business cycle. This current cycle started in mid-2006 and should reach another low sometime in 2010. The earliest that the peak should develop is at the mid-point; in the summer of 2008. This would suggest that commodity markets and global business expansion have at least another year to grow. In reality, the crest of this present business cycle could develop as late as early 2010. We do not know when the top will occur, but it is safe to say that global growth will continue into 2008, which is great for commodity prices.
Technically, now that the CRB is moving above the 320 resistance line, the next target and resistance level will be at about 355, which is near the old May 2006 high, by early 2008.

Oil: Very overbought now
The world’s most-traded commodity (Chart 2 on page 2) has developed a 2007 pattern similar to that of many past years. Annual price lows are often in early winter (i.e., Dec./Jan.) and peaks are in mid-to-late summer. Slowly breaking through 320. This is
bullish for commodities.

This is the first page of the August issue. Go to www.technicalspeculator.com and click on member login to download the full 14 page newsletter.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2007 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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