The recent spate of downbeat economic data coming out of the three major world economic powerhouses -- the U.S., China and the European Union -- have helped to send the raw commodity sector into a serious swoon. The commodity market bulls were dealt a fresh blow this week when the International Monetary Fund warned in a report that the European Union is at risk for deflationary price pressures if the bloc cannot get its sovereign debt and financial crisis under control soon. Deflation is the archenemy of raw commodity market bulls.
An examination of the weekly chart for the Continuous Commodity Index, or CCI, (a basket of 17 major raw commodity futures prices rolled into one composite index) shows prices are in a 12-month-old downtrend. The past six weeks have seen the CCI downturn accelerate. The year 2012 kicked off with an upside spurt in many raw commodity market prices, which gave many traders and investors a notion the very accommodative monetary policies of the world's major central banks the past few years would ignite inflationary price pressures to send the commodity markets on another bullish stampede, such as that which occurred in 2008.
Those bullish new year's notions have fizzled. Indeed, when examining the daily charts of the major commodity futures markets of the world, only the soybean market shows prices in an uptrend. Most of the other raw commodity markets are in price downtrends on their daily charts.
The bearish overall technical posture of the raw commodity market sector suggests the world's economies are again flagging. Sector leader crude oil sees Nymex futures prices hovering just above $100.00 a barrel. However, crude oil demand is tepid due to the wobbly major economies. And there is arguably at least a $15.00-a-barrel "war premium" built into crude's present price structure. If Iran and the United Nations can agree to de-escalate the standoff over Iran's nuclear program, which now appears possible, then crude oil prices would likely drop below $100.00 per barrel. If that does occur, the raw commodity sector may well be in for an extended period of weakness, or at least stagnation.
For the raw commodity sector to regain some bullish footing, crude oil will have to lead. Specifically, Nymex crude oil prices will have to push back above major technical resistance at $110.00 a barrel to begin to revive the raw commodity sector.