Tuesday, September 16, 2008

Wednesday Commodities Roundup

I'm going to combine the commodities round-up with today's CPI release because the two are very inter-related.


On the weekly chart of the CRB index, note the following:

-- Prices broke the year-long uptrend at the beginning of July

-- Price broke through the 50 week SMA three weeks ago with a very large downward moving candle.

-- The 10 week SMA has moved through the 20 and 50 week SMA

-- The 20 week SMA is now moving lower in a convincing fashion

-- Prices are below all the SMAs


On the daily chart, note the following:

-- Prices are below all the SMAs

-- All the SMAs are heading lower

-- The shorter SMAs are below the longer SMAs

-- Prices have been in a downward trend for two and a half months

-- Prices are now using the SMAs as resistance rather than support

Short version: this chart is now very bearish in both the weekly and daily time frames. Also note because this has been happening for some time, we are starting to see some effects in the CPI:

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.4 percent in August, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The August level of 219.086 (1982-84=100) was 5.4 percent higher than in August 2007.


On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in August, following a 0.8 percent increase in July. The index for energy fell 3.1 percent in August after three consecutive sharp increases. The gasoline index declined by 4.2 percent in August but is 35.6 percent higher than in August 2007. The index for household energy, which was up 3.8 percent in July, declined 1.6 percent in August. The food index advanced 0.6 percent in August after rising 0.9 percent in July. The index for food at home rose 0.8 percent in August after a 1.2 percent increase in July and is up 7.5 percent over the past year.


During the first eight months of 2008, the CPI-U rose at a 5.1 percent seasonally adjusted annualized rate (SAAR). This compares with a 4.1 percent increase for the 12 months ending December 2007. The energy index rose at a 22.4 percent SAAR in the first eight months of 2008 after increasing 17.4 percent in 2007. Gasoline prices increased at a 22.1 percent SAAR in 2008 after a 29.6 percent increase in 2007, while natural gas prices rose at a 46.3 percent SAAR after decreasing 0.4 percent in 2007. The food index increased at a 7.5 SAAR for the first eight months of 2008 after increasing 4.9 percent in 2007. Excluding food and energy, the CPI-U has advanced at a 2.5 percent SAAR in 2008 following a 2.4 percent increase in 2007.

Note that decreases in all the energy numbers are a primary reason for last month's drop. Considering oil is still dropping that trend is likely to continue. Also note that food and gas are a primary reasons for this year's increase. While energy is down (I will cover oil tomorrow morning but the short version it's now in a bear market) food is topping:


Notice the following on the weekly agricultural price chart:

-- There are two primary long-term trends still in place. These started at the end of 2005 and about two-thirds of the way through 2006. It will be some time before these trends are gone.

-- The trend started in mid-2007 is clearly broken.

-- Prices are now moving sideways with a slight downward bias

-- Although the SMAs are bunched up there are two important developments

1.) The 10 week SMA is now below the 50 week and SMA, and

2.) Prices are below the 50 week SMA

All of this adds up to a situation where inflation may be topping or in fact dropping.