In this report, I would like to show you a chart pattern that seems to be showing up in a lot of different area’s of the markets, in particular the commodities complex. We looked at some of them in the last Weekend Report which were maturing, but in some cases hadn’t broken down yet. The chart pattern I’m referring to is the bearish rising wedge.
Some of the bearish rising wedges have a common theme which is the late 2015 low, when commodities and the PM complex finally bottomed out after that massive impulse move down. At a minimum the price objective for a rising or falling wedge is the first reversal point in which the wedge began to build out. Prices can go much lower, but the first reversal point is a good first price objective.
Lets start with some commodities indexes to see what last weeks price action did to this one plus year consolidation pattern. The CRB index has been around longer than most and gives us a good general feel on how commodities are doing in general. Last Tuesday the price action broke below the bottom rail of its bearish rising wedge and continued to fall for the rest of the week. The big clue that the CRB index was in trouble was when the small H&S top at reversal point #4 gave way. You can see there was a quick bactest to the underside of the neckline at 191.50 which led to the test of the bottom rail of the big bearish rising wedge. The price action bounced off of the bottom rail for three days before breaking below that very important rail on Tuesday of last week. It’s still possible we could see a backtest to the bottom rail at the 189 area before prices break lower.
Below is a long term daily chart for the CRB index which shows how the bearish rising wedge fits into the big picture. That massive impulse leg down that began in 2014 took almost 2 years to complete and produced a parabolic downtrend. Since the minimum price objective is down to the first reversal point at the 2016 low it’s possible we could see a double bottom build out at the 150 area as one scenario.
This last chart for the CRB index is the 75 year quarterly chart that I built in 2015 which is still relevant. After breaking below the upper brown shaded S&R zone the price action has rallied back up to the top of the brown shaded S&R zone, but has failed to go any higher and is on the verge of breaking back below again. Note the double bottom that formed in 2000 which led to a massive leg higher. This is one chart I’ll be watching very closely.
Next is the DBC commodities index which is probably the most actively traded of all the different commodities indexes. As you can see it is setup just like the CRB index. Note the blue triangle that formed in the middle which at the time looked like it could be a consolidation pattern to the upside, which even had a breakout gap. After the price action failed to move much higher that was a clue that the blue triangle might not be what it looked like. Again, the big clue that it might be failing was at the 4th reversal point in the bearish rising wedge. As you can see last week the DBC broke below the bottom rail of the rising wedge and the top rail of the blue triangle, which should have acted as support.
