Commodities Are Over-Extended | Stock Market Investing

Tuesday, July 1, 2008 | Home | Andy Mayo

Commodities in general and oil in particular seemed ready for a fall.

Negative divergences have appeared in the Reuters-CRB Commodity Index (CCI) -- price has reached a higher high than in March while momentum oscillators are at lower highs (weekly basis).  And as the chart below shows, a bearish wedge pattern has developed.  Although the wedge points up, the probability of a downward breakout is high.


A similar wedge appears in the exchange traded fund tracking oil, USO and momentum for oil has also stalled. 



This of course could simply be a period of consolidation before another advance in price but I would look for a pullback first.  Commodities seem awfully over-extended in price.

On the other side of the ledger -- the losing side -- the Philadelphia Bank Index is headed for 1997 prices.  The buy-and-hold investor is looking at a zero return (or worse), excluding dividends, over a 10-year period.

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