A lot of investors fear there’s risk of deflation in 2013 due to the weakening global economy.
But could we have inflation instead? According to the chart below, yes.
It’s a weekly chart of the CRB Commodity Index, which tracks the performance of 19 different commodities, including grains, industrial metals, oil, etc. It’s the most popular commodity index.
And right now it may be forming a bullish pattern known as an inverse head and shoulders. This pattern is common in down trends and it indicates the beginning of a new uptrend.
The recent weakness in commodities could be forming the final right shoulder of the pattern. In order for us to be able to confirm the pattern, the price would need to close above 320.
Once there’s a breakout of the neckline, the price tends to travel the distance between the top of the head and the neckline. In this case, the distance is 50 points. In other words, if we get a complete pattern, the index could move all the way to 370 (320+50). That’s a 25% move from today’s price.
Commodities are currently facing some selling pressure around the 40- and 65-week moving average. Notice that since last year, the index has not been able to break above the 65 moving average, which now stands at 303. On the other hand, there’s significant buying pressure around 290.
Keep an eye on this chart. A rally in commodities could be one of the most important trends in 2013.
Editor, Pure Income
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