Technically Speaking

Indices and Bitcoin in Spotlight

The Bloomberg Commodity Index is seeing a textbook bullish divergence in momentum as price heads lower while momentum bottoms and heads higher. (ProphetX chart)

U.S. Dollar Index:

After trading sideways for much of the first two months of 2021, the U.S. Dollar Index has trended higher since the end of February. That strength has pushed the index to the highest level since Nov. 13 and above its 200-day moving average for the first time since May 28, 2020. While the bout of strength has rallied momentum indicators, they have not yet diverged from price as the index made new highs, a bullish feature. Starting from the multi-year lows on Jan. 6, it looks as though a larger degree five-wave Elliot sequence is unfolding. Our preferred count would suggest the rally from Feb. 25 to spot levels is wave three and has additional upside to claim. It is interesting to note the commercial hedgers position peaked on Dec. 21 at a net long of 15,292 contracts. Since then, they've moved to a net short of 8,568 contracts, which is still a rather small net short relative to history. A bullish policy is advised in the U.S. Dollar Index with weakness below the 92.5030 corrective high from March 9 minimally required to threaten this bullish call. Preferably, trade below the 91.3010 corrective low on March 18 would be seem to definitively say the upside move is over.

Bloomberg Commodity Index:

The 2020 rally in commodity indices was one of the more impressive of any asset class, although that strength has cooled in recent weeks. Since peaking at 87.7 on Feb. 24, the Bloomberg Commodity Index (trading symbol BCOM.X) has retreated a little over 4% with questions being raised about whether the correction has more room to run. The Bloomberg Commodity Index did briefly trade below its 50-day moving average last week but was able to settle above that level on Friday. The 100- and 200-day moving averages sit down at 79.6 and 74.7, respectively. The most encouraging thing in our opinion has been momentum as indicators like stochastics bottomed in early March and made higher lows last week while the Bloomberg Commodity Index made lower lows. This is a textbook divergence and would suggest the index correction could be close to running its course. When looking at the markets that comprise the Bloomberg Commodity Index, energy obviously makes up the lion's share of the weighting. With crude oil turning more consolidative, it should allow the index to slow its descent. The hotter the inflation talk the more interest should be brought into commodities, which remain the best inflation hedge there is.

April Bitcoin Futures:

In keeping with the financial market and inflation talk, we thought it worth taking a peek at Bitcoin futures. Few markets received more attention in 2020 and 2021 than bitcoin, and for good reason. Since peaking on March 15 at $61,255, April futures have undergone a bit of a correction, although the correction pales in comparison to the rally even since the beginning of 2021. Long-term moving averages are well below spot prices while short-term moving averages are resting between Friday and overnight price action. Figuring the correlations between bitcoin and things like fiat currency or commodities remains a bit murky yet given the relative newness of things like bitcoin futures. That said, bitcoin will likely be looked to as an indicator for inflation, making it important to the broader commodity market. Bitcoin futures have some objective risk parameters present with 50,360 to the downside and all-time highs at 61,255 to the upside. While admittedly wide, these two levels provide the only true directional triggers from which to gauge long-term exposure in this market.

Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of grains and grain futures involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg Cronin on Twitter @5thWave_tcronin

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