CRB Index for 13 January 2007. Weekly.

I have put a vertical bar here to show what has happened since I last posted this image. The index retraced about 40% of the difference between its May high and its October low, which happens to also be roughly the difference between the 38.2% and 23.6% retracement of the entire reflationary move up from the Index low of November 2001 to the Index high of May 2006, about 4.5 years. It is also just about the difference between the 200 week moving average, which it approached, and the 100 week moving average, to which it rebounded.

I actually hate looking at technical analysis in words so feel free to view the larger image and see for yourself. Note that over the last 2 weeks, in other words the first couple of weeks of 2007, the index has dropped violently to the 200 week MA, which it passed but then closed hard upon. This was broad-based, grains, energy, metals. I am not sure what the near term holds, but eventually there is a strong probability the index will approach 255, which is simultaneously the first real peak of the reflationary upmove and also the bottom of the “box” marking the 61.8% retracement of the same move.

In the real world, recall the paper by Yale finance professors which “proved” that any rational investor should have some assets allocated to commodities as a class in order to boost portfolio returns. Commodities move counter-cyclically in relation to stocks, yada yada yada. I have not yet read the paper, though i shall have to when I get a chance. My feeling is that as soon as some people see that the commodities portion of their allocation is losing money, they will remove funds. This will cause money in long-only funds to dwindle and return markets to a somewhat more normal ebb and flow.

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