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Commodities Are In The Same Bear Market.

  • Written by Syndicated Publisher 36 Comments36 Comments Comments
    August 6, 2011

    Commodities seem to be following the same pattern as global stock markets.

    That makes sense since the stock market is concerned about slowing global economies, and slowing economies obviously mean less demand for raw materials used to produce and ship products.

    It can be seen in the way the CRB Index of Commodity Prices is in a pattern similar to that of the S&P 500.

    Both seem to have topped out May 1st and rallied back in a failed rally attempt.



    It also shows up clearly in the price of crude oil, an important commodity that affects so many consumer and business products and costs, from gasoline and energy to the production of plastic and the cost of food production.

    Since also topping out May 1st, crude oil plunged and then struggled around $100 a barrel. On it’s last rally back to $100 Wall Street claimed its correction was over and it was headed for $130.

    It looks more like its next area of potential support is around its late June low of $90.

    But the way, the fact that the stock market has broken below its June low does not encourage the thought that oil will find support there.


    However, once again, both the S&P 500 and the price of oil have become short-term oversold beneath their 50-day moving averages.

    Does that mean another short-term bounce in oil, commodities, and the stock market are due?

    If so, will the catalyst be a hint or promise of QE3 from the Fed in its announcement after its FOMC meeting next Tuesday?

    And if that happens, will such a rally attempt also be another failed rally to a lower high, another opportunity to sell into a rally attempt for those who are still holding and hoping?

    Here’s a clue.

    The volatility has been brutal. In the ‘old days’ volatility when a market was topping out was considered to be a particular negative, known as ‘upper level churning’, when ‘buy the dippers’ surged into the market on each pullback and spiked the market up, only to have sellers rush in and halt the rally at a lower high. Eventually traders stopped jumping in so quickly to buy the dips creating still lower lows.

    We can know one group that is apparently selling into any strength. And that is corporate insiders. Recent reports have been that corporate insiders are selling their company’s stock at the heaviest pace since insider data began to be collected 40 years ago.

    That’s also not a good sign.

    Insiders have a history of acting early on their expectations of a trend reversal, selling while the market is still rising to its final top, and beginning to buy in the final stages of a correction when prices are still falling. That they are still selling, not buying, is a sign that they do not believe a bottom is near.

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    Images: Flickr