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This week, the Continuous Commodity Index (CCI) hit a fresh 30-plus year high. This index is a basket of several major raw-commodity futures prices -- including grains, livestock, energy, metals and international foods -- rolled into one composite price index. It's an excellent gauge of the overall trend in raw-commodity prices and a barometer of raw-commodity price inflation.
The bull market run in raw-commodity markets has been, and presently still is, powerful, as evidenced by the steep price uptrend in the CCI. However, there are now very early technical warning flags that have appeared in the raw-commodity market leaders, crude oil and gold. These are two of the three major "outside markets" for which many other commodity markets, and also financial markets, have closely tracked in recent months. The other key "outside market" has been the value of the U.S. dollar against the other major currencies of the world. The daily bar chart for January crude oil futures shows that the recent big downside "correction" in prices has negated uptrend lines drawn on the daily chart. This has produced some near-term chart damage. Also, the recent higher volatility at higher price levels in crude -- both on the upside and downside -- is another warning sign that a topping process may be in place.
More serious technical damage in the crude oil market would be inflicted if January futures close below the December low of $85.82 a barrel. The crude oil bulls would gain fresh upside technical momentum to suggest a retest of major psychological resistance at $100 a barrel by producing a close back above strong overhead chart resistance at this week's high of $94.85 in January crude oil futures.
In the meantime, February gold futures have backed down from the November high to produce lower highs and create a downtrend line on the daily chart. Strong "flatline" technical support at $780 price in February gold has combined with the downtrend line to produce a potentially bearish descending triangle pattern on the daily bar chart. A significant push in February gold futures below strong technical support at the $780 price level would be a strong technical clue that at least a near-term market top is in place in gold. A move in February gold prices back above solid chart resistance at $830 an ounce would provide the bulls with fresh upside technical momentum to suggest a challenge of the November high of $855 or above. Importantly, if the crude oil and gold futures show further significant downtrending price action in the coming weeks, then other raw commodity futures markets are likely to see the air come out of their bullish balloons. It's also likely that the Continuous Commodity Index will begin to trend lower if gold and crude oil start to break down, technically. All raw-commodity-market watchers need to pay extra close attention to the gold and crude oil markets in the coming few weeks.
At time of publication, Wyckoff had no positions in the stocks mentioned, 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.
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