Cracks In The Commodities

Here we have it, another drop, and despite a late rally, bigger than expected. The problem we have now is, how mych support doe we have? While 1344 might be some support, 1340 a little more, the biggest support should be at the 50% retracement of the last move up, down around 1335, which is a long way from here. Not that we have to go there, and with the relatively low volume of the last two days, we might not. Today the dip buyers came in, if not in force, enough to pull us off the bottom and stop what was beginning to get a little frightening. Until proven otherwise, I have to assume this is a minor pullback.

Oil got hit today, but is still pretty strong. It is still range bound between 105 and 115, and today bounced off the middle of the range. RSI and MACD are both starting to drop, so I would not be urprised to see it go back as far as the 50dma, but would be surprised if it went farther than that. I do see the divergence in the lower peaks in RSI, which usually indicates a weakening trend, it just doesn't predict when the trend will end.

Gold has also been taking it in the shorts for the last two day, but is still well above support, and nearly at the top of it's current range. We did not see panic buying on the way up, so we probably won't see panic selling on the way down, but I would be cognizant of the threat of margin calls both here and with oil, as the heavily leveraged gun slingers on Wall Street start taking some losses.

Here is what I am takking about - heavy leverage, and panic buying put this on nearly a straight up trajectory. It is now the subject of several margin hikes by the exchanges, and took a big hit yesterday and today. It went through a pivot point today and looks like it may hit the 50dma tomorrow. if it breaks that, then you will start to see some panic selling.

The yield on the 10 year treasury is going pretty much nowhere, which is probably a good thing, as a rapid rise here will be pretty devestating. The problem now is who will buy when the Fed stops (assuming they stop in June as scheduled).

You would expect a bounce in the dollar with market and commodity weakness, and while we are getting one, it is so far awfully weak. What is really remarkable about this chart is that the gap between the 20dma and 50dma is actually widening, meaning the rate of the drop is increasing. This is at a critical crossroads, with two key questions: Will Bernanke le this continue to drop?, and more importantly, can he stop it? We will see.

We are seeing the first signs of a crack in the commodity complex. It's way too early to call it a crashj, but it was the crash in commodities in 2008 that triggered the disaster that was to come a few weeks later. We may just see history repeat itself.