Broad-based commodities volume weakness

A phenomenon that I noticed a few days ago is apparently starting to amplify. It is a broad-based weakness in new volume needed to sustain price strength in many of the most liquid commodities, including crude oil, gold, soybeans, and corn.

The charts shown below are for the above-mentioned commodities. In each one, I have placed a blue ellipse (circle, but more elongated instead of perfectly round) around each one. Most of these same commodities are also showing signs of falling Open Interest. I have not shown the Open Interest in these charts; however, on my daily charts, I keep a 5-period simple moving average of the open interest for each of them, and in all cases for these commodities, this simple moving average of open interest is also falling.

What Does This Mean?
Does this mean that the commodities bull run is over? Not necessarily. However, it certainly seems to be significant that volume-based activity is showing net selling for all these commodities, despite recent higher prices for them all. Any commodities buyers should be cautious when volume buying is so weak, and I am considering only short-term trades with tight stops. It is my opinion that after such bullish prices for so long, even if the current bull is over, prices are more likely to consolidate rather than fall precipitously.

In his book, Trading Day BY Day, Chick Goslin says that the larger and more liquid a particular financial instrument is, the more likely it is to remain in that trend (Law #2). An huge ocean liner takes a much longer period of time to turn than a small speed boat. That being the case, I believe that prices should remain relatively well-supported. Grains particularly, because they are a food commodity, should remain strong, since people must continue to eat. At the end of a trend, prices are more likely to consolidate rather than reverse suddenly.

Conventional wisdom is that during a recessionary period, commodities prices tend to fall due to decreased demand. However, in past recessions, there was not as much speculative, electronic trading to provide additional liquidity and price support. The phenomenon of rapid growth in China and India didn't provide price support, either. I am guessing, but my best guess is for a period of price stability (consolidation) and range trading, albeit at much higher prices than in previous recessionary periods, for several days or weeks. If the U.S. economy returns to positive growth soon, the commodities bull market will continue upward as well.

Crude Oil


Gold


Soybeans


Corn