Monday, June 6, 2011

Commodities Correction - The 20-50 Rule

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Commodities are in correction mode. I think this correction has further to go in time and price. However, I don't think it will last long. The question in my mind is whether or not to buy general commodities at the end of the correction. Only Mr. Market knows for sure...

However, I give you the "20-50 rule" on a weekly chart of the CCI Commodities Index for your consideration. This rule has worked pretty well over the past 8 years for the CCI Index and I don't think this time will be different. Here is an 8 year weekly log scale chart of the CCI index ($CCI) showing the "20-50" rule:

Personally, I'll be buying Gold and Gold stocks when the bottom comes. I think the next bottom in Gold stock indices, which should correspond fairly closely with the bottom in commodities, will be the best buying opportunity of 2011. In the shorter term, I think Gold, silver and Gold and silver stocks have further to correct, as do the general markets along with commodities.

Gold has held up the best of almost any asset class during this correction, failing to break down so far and near its all-time highs. This is quite bullish. However, even Gold should succumb briefly to the selling pressure over the next week or so. I don't think it will fall below its 150 day moving average, which currently sits at 1420 (and rising quickly). This implies a correction in the 6-8% range for Gold, which ain't worth worrying about.

My subscribers and I are currently short silver as a way to play this commodities correction. Join us!

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