Technically Speaking

Tregg Cronin
DTN Contributing Analyst

After a persistent uptrend since May of 2021, the U.S. Dollar Index has turned consolidative at the very least. From a long-term perspective, the trend is still up; but from short- and arguably intermediate-perspectives, trends are now down. This is evidenced by the recent slip below the 50-day moving average. The last time the Dollar Index was below the 50-day was briefly in mid-August and then back to January. The trick now is determining whether the current move is simply a bull-market correction ahead of another round of new highs above 114.7780, or the start of a larger bear move south. To be fair, additional weakness could be seen down to the 105 area and still be considered a bull-market correction. If bulls are to remain in control, we would like to see former resistance turned new support at the July highs around 109.2940 hold on any further weakness. From a very short-term perspective, the buying late last week off the reversal higher on Oct. 27 was encouraging. We would expect additional follow-through this week.

Commodity indices of all shapes and sizes have been under pressure since peaking in June, and the Bloomberg Commodity Index is no exception. Fortunately for bulls, support has been found around the 110.00 area on two separate occasions, which should act as support if additional weakness is seen this week. The index is below its 50--, 100 and 200-day moving averages, in-keeping with the negative sentiment witnessed of late as peak inflation chatter increases. One of the key drivers in the commodity space is the aforementioned U.S. Dollar Index. If the greenback continues to correct lower, this should offer support for commodities generally. Simply put, the Bloomberg Commodity Index needs to hold the 110.00 area if challenged, which would give bulls additional confidence. If the 110.00 area cannot be held, additional downside to the 105.00 area is likely.

The largest component to most commodity indices is crude oil, so taking a closer look here is appropriate. As with the BCOM Index, crude oil has been in a persistent downtrend since June with only a few corrections. The most recent rally from 76.25 to 93.64 has ended, turning crude consolidative of late. With this consolidative trade, we now have objective risk parameters from which to gauge directional exposure. To the downside, the 82.09 corrective low from Oct. 18 and to the upside the 93.64 corrective high from Oct. 10 should suffice as longer-term directional triggers. Admittedly, an $11 range is probably too wide for the risk appetite of most traders. Unfortunately, with the volatility witnessed of late, larger buffers are needed. From a shorter-term perspective, last week's high of 89.79 needs to be reclaimed to tip directional scales higher. Overnight weakness below 87.08 has indeed argued for additional short-term weakness with the next level of support at the Oct. 21-Oct. 25 highs between 85.90-86.03.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Tregg Cronin can be reached at tmcronin31@gmail.com

Follow Tregg on Twitter @5thWave_tcronin

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