Commodity Bulls Looking Good

 | Sep 01, 2011 | 11:00 AM EDT
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The raw commodity sector had a very shaky start to August, but it now appears the raw commodity sector is on the verge of another bull move into the end of the year.

The Continuous Commodity Index (CCI) is a basket of 17 major raw commodity futures prices (energies, grains, international foods, fibers, metals and livestock) rolled into one composite index price. It's an excellent gauge of the overall price trend in the sector. In early August the CCI dropped to a fresh seven-month low amid the height of the twin sovereign debt crises and a spate of weaker economic data coming from the world's major economies.

Crude led the sector lower, hitting a low of $76.15 a barrel, basis the nearby October Nymex futures contract, on Aug. 9. But by the last day of the month, prices hit a fresh three-week high of $89.54.

Indeed, price action in the CCI during the month of August saw a steady climb higher, with the index hitting a fresh two-and-a-half-month high on Wednesday and producing a significantly technically bullish monthly high close.

The overall technical posture of the CCI remains fully bullish. The index has been in a strong uptrend since December 2008 and hit a new all-time record high in April. The summertime downside correction in prices on the longer-term CCI chart was a normal occurrence (called a reaction low on the chart) and the price uptrend remains fully in place. In other words, the path of least resistance for the raw commodity sector remains sideways to higher.

From a fundamental perspective, last week's speech by Federal Reserve Chairman Ben Bernanke and more comments from Federal Reserve Board Governor Charles Evans this week added fuel to the bullish commodity fire. Bernanke last week did not spell out specifics of any fresh quantitative easing of U.S. monetary policy, but he did suggest the Fed is fully ready to implement fresh stimulating monetary measures should the need arise, and most believe that will be the case in the coming weeks and months. Fed Governor Evans this week was more assertive when he advocated aggressive monetary policy stimulus continuing and implied the U.S. economy was tilting toward recession.

The U.S. stock indexes are also signaling good times ahead for raw commodity market bulls. The strong rebounds in the major averages from the August lows hint that the seasonally weak stock market period (September and October) just saw an early visit this year and stocks will now likely trend sideways to higher into the end of the year.

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