Friday, September 9, 2011

Commodities Appear to Be Setting Up For a Run Higher (DBC; RJA)

From Forbes:
3 S&P Beating Commodity Picks
The evidence is now quite strong that these markets have bottomed, meaning a short-term pullback would be a good chance to jump in on these broad-based sector ETFs and ETNs.

Commodity markets dropped along with stocks in early August, as concerns over the health of the economy reached a fever pitch after the debt downgrade.
As stocks have rebounded from the August lows, the major commodity indices, as well as the commodity ETFs and ETNs, have been even stronger. The charts indicate that the correction from the May highs has been quite normal, and there is strong evidence now that the lows are in place.
This suggests that global economies—especially the emerging markets—may be in better shape than most think. The broad-based commodity ETFs and ETNs are now testing strong resistance, so a near-term setback looks likely, but this should be a good buying opportunity.
Click to Enlarge
Chart Analysis: The daily chart of the Reuters CRB Index shows that the flag formation, lines a and b, has been completed. This correction looks similar to what occurred in 2010 (green circle), as the CRB then had a six-month correction that ended in July 2010.
  • The decline from the April highs at 691 was quite shallow, as it only lost 11% through its early August low of 615.50
  • The index is now close to stronger resistance near 660, with more important levels in the 675 to 680 area
  • The minimum upside target from the triangle formation is in the 700 to 720 area
  • The relative performance or RS analysis broke out of its trading range (lines c and d) in early August. This signaled that is was starting to outperform the S&P 500. This trend is likely to continue
  • There is initial support now at 635 to 645