"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Thursday, September 22, 2011

Commodity Sector Breaking Down but long term trend is still higher

Consider this as sort of an addendum to the article on the Australian Dollar earlier today.

Today's selling onslaught across the entirety of the commodity sector has wiped out the gains in this sector for the year. That is leading to further selling as hedge funds are grabbing what little might be left of their paper profits in there before those entirely disappear.

There are several factors which I think merit referencing on this weekly chart.

Firstly - the stampede to sell has taken the index below a major horizontal chart support level that came in near the 600 level. It has also brought into a focus a downtrending price channel that can now clearly be seen on the chart. Price is working slowly lower in this channel having failed to better the 660 level which is now a major point of chart resistance.

However, the longer term trend in the overall sector is still higher as can be seen from the uptrend line drawn connecting some of the reaction lows in the ongoing bull market that began back in late 2008 with the inception of the first QE program.

I am keenly interested in the point at which the lower red line of the price channel intersects with the rising blue uptrend line. That comes in near the 580 region.

In spite of the widespead selling across the commodity sector this morning, some of the major bank trading houses are still bullish on the sector overall but are cautioning their clients about the possibility of further near term declines. Some are advising clients that buying opportunities are going to present themselves but warn those potentially interested in the long side to expect more volatility. It could well be that we see some of these sidelined buyers moving back into the sector if the CCI nears this chart intersection level of 580.

This is another chart we will have to monitor for clues to future market price action as we enter the 4th quarter of this year.


  1. Dan, the gains of the year for gold and silver are still over 20% at this moment of writing
    Source: http://netdania.com/Products/live-streaming-currency-rates-foreign-exchange/real-time-quotes/QuoteList.aspx?m=q

  2. Michael;

    Thanks for pointing that out. I was referring to the index as a whole and not to specific commodities making it up. I am glad that you noted that for the readers.


  3. Dan, any comment about silver penetrating the 200DMA today? Is it significant?

  4. In response to flaunt:

    In the view of most technical traders, the 200DMA represents a line of possible support, so long as silver's price remains above. Conversely,the 200DMA represents a line of possible resistance, so long as silver's price remains below.


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