by Erik McCurdy
Caption graph from Wikiposit.org
Due in large part to the quantitative easing programs implemented by the Federal Reserve, the Continuous Commodity Index (CCI) has effectively doubled during the past two years. The cyclical uptrend from early 2009 has been rising at an unsustainable rate for the past ten months and will almost certainly be followed by a violent overbought correction. As shown on the following monthly chart, the current power uptrend from July 2010 has caused momentum to surge above the 2008 high and price oscillators have been holding at overbought extremes since early this year.
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The rally remains healthy for the moment, but it is also exhibiting early signs of fatigue and the odds of a sharp retracement are increasing. MACD histograms have been holding at recent extremes for three months, indicating that upward momentum is no longer accelerating. Normally, this development would not be a significant cause for concern. However, in this case, given the extreme nature of the move from July 2010, it is a meaningful warning sign. A monthly close below support at the lower boundary of the power uptrend at 670 would be a material technical breakdown signaling the likely return to cyclical uptrend support near 560. On the weekly chart, uptrend support is currently near 677, so a weekly breakdown would likely precede the monthly breakdown, unless they both occur together at the end of April next week.
Finally, the current short-term view offers an essentially mixed picture. The index has just broken out to a new long-term high on the daily chart in the presence of a slight negative divergence between technical indicators and price behavior.
A quick reversal and close well below new congestion support in the 684 area would call the breakout into question and predict a return to the bottom of the recent trading range near 660. However, the key technical levels to monitor are 677 on the weekly chart and 670 on the monthly chart, as a close below long-term uptrend support would signal the likely development of a potentially violent decline of at least 20%.
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Erik McCurdy is the senior market technician for Prometheus Market Insight and has been analyzing charts every day for over 15 years. The software program that he developed to monitor long-term stock market trends has correctly predicted over 90% of the long-term turning points in the S&P 500 index since 1940. His Gold Currency Index has predicted every major trend change in the US gold market since its creation in 2005. The Prometheus Market Insight newsletter service provides daily, weekly and monthly forecasts for stocks, bonds, currencies, commodities and precious metals using proven computer models that base their predictions on technical and cycle analysis. Stay in touch:
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