As I noted in a post a number of weeks ago, declining commodity prices usually indicate demand for goods is dropping and the economy is in trouble.
There has been only further deterioration in commodity prices in the weeks since.
I won’t mention 2008 when everything collapsed. But in the summer of 2010 the CRB Commodity Index fell 15%. The economic recovery stumbled, and the S&P 500 also fell 15% in that summer’s market correction before the Fed came to the rescue with QE2.
In 2011, the CRB Index fell again, declining 19.5%. And sure enough, the economic recovery stumbled again, the S&P 500 declining 21% before the Fed came to the rescue with ‘operation twist’.
Last year the CRB Index had only partially recovered from its 2011 decline, and topped out again, and the economy stumbled again with the S&P 500 pulling back 11% to its June low
And here we are this year with the CRB having topped out last fall, and not recovering at all in the winter months even though the economy seemed to be recovering again and the stock market has been in an impressive favorable season winter rally.
The CRB has declined 11.5% so far from its most recent peak, making lower highs on its short-term rally attempts and lower lows on its subsequent pullbacks, showing no signs of reversing to the upside.
The ongoing breakdown shows up more clearly on the short-term charts.
Maybe it will be different this time, and perhaps next week’s economic reports will provide commodities with more hope. But it seems to be yet another indication that the economic recovery is due to stumble again this year.
DJ Transportation Avg and small stock Russell 2000 still diverging.
While the Dow Industrial Average continues to hold up near its highs, the DJ Transportation Average remains in negative divergence with it, in a pattern of lower highs and lower lows since early March.
And while the blue chip S&P 500 also continues to hold up near its highs, the small stock Russell 2000 remains in negative divergence with it and in a pattern of lower highs on the rally attempts and lower lows when the rally attempts fail.
The consensus of the 35 technical indicators we utilize remains on the buy signal for the market. But there has been deterioration, with some indicators no longer positive. Combined with the situations with the economic reports and divergences, it sure has us watching closely.
To read my weekend newspaper column click here: Here’s Why Next Week’s Economic Reports Are The Most Critical in Months!
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About The Author
Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.
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