Basic Materials And Commodities

Since the Basic Materials sector is breaking out I would like to take an in-depth look at some of the stocks that make up the Basic Materials sector along with some commodities in general. Most commodities have had a tough go of it since they topped out in 2011, but there are some signs that they may be bottoming, which could lead to a substantial rally over the intermediate to the long term. As you will see some of the bottoming formations are very symmetrical while others are pretty ugly, but as long as they can make a higher high and higher low an uptrend is in place.

Lets start with the CRB index which built out a one year bearish rising wedge formation that broke to the downside in March of this year. The price action has been chopping to the downside and has gotten a bounce to the upside in late June. Normally the price objective of a rising wedge is down to the first reversal point where the pattern started to build out.

There is another pattern I’ve been keeping a close eye on which may have given us a good clue today that we may have a consolidation pattern building out which is forming above the January 2016 low. As you can see on this long term daily chart for the CRB index it has built out a sideways trading range which broke to the downside last month, which wasn’t a bullish development if one was bullish on this index.

Expanding patterns, whether they’re a triangle, flat top or flat bottom, expanding falling wedges or expanding rising wedges, are some of the more difficult formations to find in real time. The reason being is that with the pattern on this daily chart below shows a false breakout below the bottom rail, blue horizontal dashed line, which looks like a breakout to the downside. With today’s price action closing back above the blue dashed line we now have a potential flat top expanding triangle. If the price actions can close above the top horizontal trendline, the flat top triangle will be the first consolidation pattern in the CRB’s index’s new bull market.

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Disclosure: None.

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