Even as traders keep a keen eye on government data as their cue on the direction of interest rates, they're missing an equally -- if not more -- important factor: commodity prices.

There are walls of resistances on Comex Gold, Nymex crude oil and the CRB indices that suggest that any additional inflationary pressures from commodities should end this quarter. And that will likely affect any decision by Greenspan & Co. about what to do with interest rates. In this environment, the rebound in the dollar should end as well.

The weekly chart for crude oil shifts to negative on a weekly close below the five-week modified moving average at $64.09. Crude oil could soon confirm that the Aug. 30 high at $70.85 is a significant market top. A weekly close below the five-week modified moving average (MMA) at $64.09 would be a sign that a cycle high has been set.

In my judgment, when crude jumped and then stayed above $62 per barrel, consumer demand began to slump and the economy began to slow. This happened on Aug. 8, well before hurricanes Katrina and Rita. Although it is true that there are and will be supply shortages in energy, my models suggest that much of the upside in energy prices has been on trader speculation, fueled by the Federal Reserve's low-rate policy that pushed the funds rate far too low. Despite supply disruptions, sellers now enter the market on every bungee jump in price.

The rally in gold is occurring not because of inflation fears, but because of the risk of economic dislocations. Gold becomes an alternative asset class when alternative investments become less attractive, or when gold becomes the currency of last resort. The last time gold traded into the $482.70/$486.50 zone, where my model shows quarterly and semiannual resistances, was in the period from October 1987 to January 1988, in the wake of the stock market crash of 1987.

My models show negative divergences for the CRB Index as well. The ceiling for the CRB should be at or below my monthly/quarterly resistances at $345.79/$347.51, with risk to my semiannual pivot at 302.64, which would be confirmed by a weekly close below the five-week MMA at 321.69.

Commodities and Foreign Exchange

  • Comex Gold ($472.0): Monthly support is $460.1 with a weekly pivot at $470.7, and quarterly/semiannual resistances at $482.7/$486.5. See monthly graph below.
  • Nymex Crude Oil ($66.24): Quarterly support is $59.99 with the five-week MMA at $64.09, and weekly/monthly/quarterly resistances at $68.73/$69.01/$69.21.
  • The CRB Index (332.97): Semiannual support is 302.64 with the five-week MMA at $321.69, a weekly pivot at 330.96 and monthly/quarterly resistances at 345.79/347.51.
  • The Euro (1.2019): Monthly support is 1.1854 with the five-week MMA 1.2201 and five-month MMA at 1.2400.
  • The Dollar vs. Japanese Yen (113.48): My annual pivot/five-week MMA/weekly supports are 111.41/111.38/110.29 with monthly resistance at 115.44.
Commodities and Foreign Exchange
Date Gold Crude Oil The CRB $ Euro $ Yen
30-Jun-05 $436.60 $56.61 $306.91 $1.21 110.83
30-Sep-05 472 66.24 332.97 1.2019 113.48
Change 6.96% 13.39% 5.28% -0.44% 1.41%
Value Area $311.3 A $48.03 A 257.28 S 105.88 Q
227.29 A 104.17 S
Support $460.1 M $59.99 Q 302.64 S 1.1854 M 110.29 W
Pivot $470.7 W 330.96 W 1.2123 W 111.41 A
Five-Week MMA $454.90 $64.09 321.69 1.2201 110.85
Five-Month MMA $439.90 $57.98 311.73 1.24 108.69
Resistance $482.7 Q $68.73 W 115.44 M
Risky Area $486.5 S $69.01 M 345.79 M 1.2775 S 117.37 S
$503.4 Q $69.21 Q 347.51 Q 1.3262 Q 126.93 A
Courtesy, Global Market Consultants, Ltd.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of TheStreet.com Technology Report newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury Bond Trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury Strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback -- click here to send him an email.