samedi 2 août 2008

Commodities broad consolidation underway

KEY POINTS:

• Short-term weakness in August for CRB; upward pressure back by September; 400 to 420 main support zone in consolidation
• Broad, flat trading pattern potentially building; increased caution needed over the next two to three months
• Range-bound trading continues for oil above $120 support level this month; peak price remains at $141 to $147 for 2008
• Natural gas finds support at $9.00; target back to $14 by 4th quarter
• Slow growth in global economy gives slow growth to copper; $5.00 target holds
• Gold season starts by late September; second half of the month offers good pricing opportunities on precious-metal securities

Of the four main markets – currencies, commodities, bonds and stocks – natural resources are the clear winner in this game. Much to the likely dismay of big-cap, blue-chip equity investors, tangibles are providing portfolios with welcomed profits in a bear market. And this pattern is not expected to change in the near future. With the mighty greenback steadily drifting lower (the U.S. is $9 trillion in debt, and counting) and China’s and India’s economies expanding at more than 8% gross domestic product (GDP), this secular combination of events remains very bullish for commodity-based investors over the long term.

Potential blowoff by September?

In last month’s issue, I commented about a potential blowoff by September. As we all know, nothing advances forever, and corrections are part and parcel of bull markets.

Chart 1 illustrates the dynamic advance of the Consumer Research Bureau (CRB) Index in 2008. The target zone for the rise was 480 to 485, and it nearly reached that, with 473.97, in early July. Summer is historically a weaker time for the CRB Index. For the last five years, June through to August has been marked with flat-to-down numbers, only to recover and advance once again in the fall. This is the normal seasonally pattern.

Your comments are always welcomed.

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