Charts of the Week: Commodity Correction Likely Still in Progress

    by Erik McCurdy

In late April, chart analysis suggested that the development of a violent retracement in commodities was becoming more likely. In early May, the extremely overextended rally broke well below long-term uptrend support on the weekly chart, signaling the beginning of the anticipated correction. 

Although the Continuous Commodity Index (CCI) has now declined 7% from the long-term high in April, it is highly unlikely that the correction is over. The rally from mid-2010 was an extreme move that resulted in a gain of 53% during the course of 10 months and the developing breakdown on the monthly chart suggests that additional losses are likely before the next meaningful rebound occurs.

A monthly close well below support at the lower boundary of the power uptrend from June 2010 near 670 would constitute a confirmed breakdown and predict a return to long-term uptrend support near 567 during the next few months. Watch the close on Friday for this potentially important confirmation.

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