S&P GSCI (COMMODITY INDEX)

Commodities are selling off. From energy to metals we have seen widespread weakness in commodities at the back of global growth concerns. Since March 2011, S&P GSCI has been in a downtrend forming wide swings. Feb 2012 peak was lower than the April 2011 and Sept 2012 peak was lower than Feb 2012. This resulted in a downward sloping trend channel and in this trend channel we have seen wide swings between 700 levels and 500 levels. During this medium-term range bound trading (with a downward bias), 200-day moving average acted as a balance where index levels above the average resulted in continued strength and index and below that threshold it resulted in weakness.

After finding resistance at 700 levels in September 2012, S&P GSCI sold-off sharply to test its long-term average at 652 levels. Two months-long consolidation that formed above the 200-day moving average broke down with a gap opening during this week. Index is now below the 200-day moving average. Failure to hold above long-term support levels will put further pressure on the downside and will pull the index towards 600 levels.

Unless S&P GSCI reverses back above 652 levels in the following weeks, we should expect lower prices and continued weakness in the commodity universe.