Tuesday, March 24, 2009

Have Commodities Bottomed?

There seems to be a changing of the guard taking place in the commodities market. Above is a monthly chart of DBC which is the ETF for the Commodities Index (CRB). As you can see there appears to be forming a monthly bullish engulfment pattern. There are still 5 trading days left in this month so the pattern is not confirmed until the month comes to a close. The reason I'm posting this now is because I'd like to share with my readers what I am seeing as it's happening.

Bullish and bearish engulfment patterns are one of my favorite candlestick formations when used correctly and can be a great help in identifying changes of trend within 1 or 2 bars of the actual high or low. For example, in July of 2008 DBC formed a bearish engulfment and that was literally the high of the bull market.
Now we are seeing a bullish engulfment forming which leads me to believe that commodities are going to rally.

Usually the first commodity to rally at major turning points is gold and that is exactly what's been happening over the past few months. Now oil is beginning to make a move higher and so is copper.

Like I said, there are still 5 trading day left in this month but the odds of a monthly bullish engulfment pattern forming are pretty high. If my analysis is correct, I think we should be looking to buy the dips in commodities that are showing the most strength. Lets see what happens.


sk said...

Hi Kevin, I always enjoy your comments I receive via email.

One comment on DBC: I have read that Bearish Engulfment is not a very reliable candlestick pattern to say the least. It is considered "medium strength"

Anonymous said...

What do you mean bottom? Can you define that for us? To me a one up month after a 64 % straight down move is more like a dead cat bounce. If by bottom you mean a change in trend from bear to a bull I will have to disagree if by bottom you mean a multimonth sideways move then I will have to say there is a good chance we are the beggining of that stage.



Kevin said...

Hi Costas, when I say bottom, I mean that we are going to have some kind of a bounce. The size of the bounce is unknown but I think money can be made on the long side in the month's to come.

Hi Sk,

If you COMBINE bullish and bearish engulfments with other trading tools, they can be very effective. I've identified many tops and bottoms in real-time on this blog simply by watching for engulfment patterns.


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