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STOCHASTICS


Commodity Update

11/26/08 08:49:41 AM
by James Kupfer

Are commodities finally a buy?

Security:   XOIL, XGLD, XSLV, DJAIG
Position:   Accumulate

For almost two months, I have been trying to pick a bottom in the commodity markets, without much success. By looking at the components of the CRB, we can get better insights as to when the bounce will finally arrive or if it is here already.

FIGURE 1: XOIL, MONTHLY. Previous support level is shown with a green line. Note stochastics are at very low levels.
Graphic provided by: Wealth-lab.
 
Figures 1 through 4 are all monthly charts that allow you to see the big picture action. With the exception of gold (Figure 2), which is starting to advance nicely, all the other charts look remarkably similar — a sharp price drop over the last few months has put the indexes into very oversold states, and they are all off their lows after having hit a major support level.

FIGURE 2: XGLD, MONTHLY. Gold has already started to move up strongly.
Graphic provided by: Wealth-lab.
 
While being oversold does not mean these tradables cannot go lower, it does point to an increased possibility that a bottom is near. In addition, the fact that almost all the major commodities have bounced off long-term support provides another piece of supportive evidence that a significant bottom is in the making.

FIGURE 3: XSLV, MONTHLY. Previous support level is shown with a green line. Note stochastics are at very low levels.
Graphic provided by: Wealth-lab.
 
FIGURE 4: DJAIG, MONTHLY. Previous support level is shown with a green line. Price is slightly below support. Note that stochastics are at very low levels.
Graphic provided by: Wealth-lab.
 



James Kupfer

Mr. Kupfer is a market professional and amateur stock market commentator. Disclosure: It is likely that Mr. Kupfer has or will enter a position in any security he writes about.


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