Raw Commodity Prices May Be Near a Peak

For the past six years, raw commodity markets in general have been in a solid price uptrend, spurred by strong industrial demand from growing world economies and by keener speculative buying interest in raw commodities futures markets.

However, some key fundamental and technical elements are now converging to begin to suggest that raw commodity prices in general are nearing a peak, or at least may pause their general uptrend.

Crude Oil, the Upside Leader, Is Now Vulnerable

Crude oil has been an upside leader in the general rally in raw commodity prices. Crude oil futures on the New York Mercantile Exchange just this week notched a fresh 12-month high above $78 a barrel. While the price trend of the crude oil market is still solidly up at present, there are a few early warning signals that do suggest a market top may be close at hand.

From a technical perspective, the daily bar chart for September crude oil futures on Wednesday showed a bearish "key reversal" down. That is, a new high for the present uptrend was scored, and then the market backed way off. This produced a higher daily high and lower daily low than the previous session's trading range. Key reversals are good technical indicator of a market top or bottom.

From a longer-term technical perspective, if crude oil futures prices do back off significantly from present price levels, then the weekly continuation chart for nearby crude oil futures would show a technically bearish "double-top reversal" chart pattern, based upon the twin peaks that would be posted on the weekly chart: the July 2006 high and the early August 2007 high.

From a supply and demand, or fundamental, perspective in crude oil, there is not much argument: For months the fundamentals for the liquid energy markets have been bullish. However, it can be argued that the bullish fundamental factors that have been impacting the liquid energy markets all have been factored into the present pricing structure of the futures markets.

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At time of publication, Wyckoff had no positions in any of the equities mentioned in this column, although positions may change at any time.

Jim Wyckoff is a senior market analyst for TradingEducation.com a free educational Web site. In addition, Wyckoff writes a blog offering current market commentaries every morning on TraderBlogs.com. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wyckoff appreciates your feedback; click here to send him an email.