I wrote back in July about the emerging strength in commodities and the potential for further upside. The Thomson Reuters/CoreCommodity CRB Index (CRB) has now completed an inverse head and shoulders bottoming pattern, which provides additional upside objectives for commodities.

The CRB confirmed a head and shoulders top when it broke down through the neckline back in April (solid pink lines). By measuring the height of the pattern using the high from January, we came up with a downside objective of around 167.40 (dotted pink line). The CRB rallied sharply after reaching this objective, soon establishing a series of higher lows.

Commodities then formed an inverse head and shoulders bottom, using the low from June and the higher lows in May and August (solid blue lines). After confirming a breakout of the neckline in early September, the CRB hit resistance at the 200-day moving average before breaking through this key level in October.

We now have a confirmed uptrend, with a series of higher highs and higher lows. The next key resistance level for the CRB is the previous highs from 2016 and 2017, around 196 (solid red line). Beyond that, we have the upside objective for the inverse head and shoulders pattern around 200.50 (dotted blue line).

What would cause us to revisit this bullish thesis? The 50-day moving average (orange line) has served as support a number of times in this current uptrend. Corrections during uptrends often pull back to the 50-day moving average before starting another leg higher.

The most important thing to watch is price itself. Until we see a lower high and a lower low, the trend remains up.

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