Bearish chart of the day

The financial cliche "past performance is not a guarantee of future results" is pretty pointless, since anyone looking for a guarantee shouldn't be investing the money he inherited in the first place. (It can be assumed the money was inherited because anyone stupid enough to expect a guarantee couldn't possibly have earned any money to invest himself).

While the past is not a guarantee of future events, it certainly can be a predictor. Human intelligence would never have evolved if this were not the case.

Here's a chart I've been referring back to since the spring: the CCI (index of commodity prices) with the orange 233-day moving average drawn in (233 is a Fibonacci number and appears to be slightly more accurate as a lower bound than the 200-day, which is also drawn in as a green dotted line).

This chart cannot predict the future. But it does tell us that since 2002, the steadily rising 200 and 233-day moving averages have been broken only twice, despite being tested >25 times. Once in 2008, and then a few days ago. Moreover, a very important horizontal line of support (see red-green line) was broken almost simultaneously. So, to the extent that past patterns suggest future events, I'd say the recent break of the 233-day moving average is significant and unlikely to reverse in the short term. Strikes me as an early indicator of 2008-like deflationary pressure ahead, as the moving averages are poised to roll over and have their second period of decline in almost a decade.


Brian O'Flanagan said...

completely agree. Corn down another 6.3% today, soybeans down 3.7%, crude 1.6% and copper 2%. Deflation reigns right now and extreme dissension in policy circles means little is going to be done about it right now. Until that changes, cash is king.

Louis Cypher said...

Hey sorry about posting above you GM. Looking for the delete button to remove the silly post. If you find it before me delete the above post.

Louis Cypher said...

Well I know it's fashionable in the blogger world to say we won't get QE3 but we shall see. I am willing to bet we will but the Fed is going to wait until they are asked/begged and not before. In the meantime they will just get creative and use what they have before we are begging for a couple of Trillion in liquidity.