We are now within 5% of the critical 200 level on the CRB Index which has been a defining level historically for all that is bulky, soft, metal, and oily/gassy.
In February of 2009 this level served as the floor for commodities near the lows overall for markets in the financial crisis. This level also has served as a major resistance level and pivot point for commodities on the way up in the early stages of the “commodity super cycle” that arguably began in 1995.
Three times in 1996 the index stalled at 200 before crashing lower during the Asian, Russian crises, then gyrated for 6 months there in 2002/03 before moving full steam into the commodity super cycle that lasted through 2011 with a detour for in 2008/09 as the credit crisis cratered assets.
After what looks like a mere typical stall over the last 3 months but that which we have seen as a basing period, the index appears headed to 200.
The forces of deflation are very different today than they were in 1995 or 2000, and if anything the Fed was playing a role in terms of their interest rate cycles and their impact on commodities.
Today we have unprecedented deflationary forces and central bank policy fighting those forces, added to a supply surge that is also unique.
We are not ready to run from a fundamental view that commodities should be basing here but it will not be simple and 200 might be the technical backstop we need.
After arguing for the last three weeks that commodities were holding as the Dollar surged to highs not seen in 10+ years, clearly they have broken down in the second half of this week. We will change our call on a decided break of 200.