marctomarket.com / by Marc Chandler / October 27, 2016
Bond yields are rising. The break-even rates, which compare conventional yields to the inflation-linked securities are also rising. These developments, which we do not think can be attributed to central bank policy, encouraged us to take another look at commodity prices.
Some investors are talking about a potential head and shoulders bottom in the CRB Index. This Great Graphic, created on Bloomberg, draws the neckline to the pattern that has been unfolding over the past 14 months. The neckline is foundnear 191.80, and by the end of next month, it is closer to 190. It is trading a little heavier today. It is the second days of losses,and unless it recovers over the next 36 hours or so, it will finish lower for the second week, snapping a four-week advancing streak.
The importance of chart pattern, like the head and shoulders, is the price projection upon the confirmation. The confirmation is a convincing violation of the neckline. From the head to the neckline is about 35 points, so a break of the neckline projects 35 points higher as an initial target. That would be the CRB to around 225. The would bring the index into the gap created by the sharply lower opening on 6 July 2015.