By Jim Donnelly, Olson Global Markets

With a number of technical oscillators on weekly charts bearishly positioned, the Reuters/Jefferies CRB Total Return Index continued to slip last week, extending a decline that originated in late February. Natural gas prices have led the path lower and have proved to be the weakest. Despite oversold conditions and a reduction in drilling rigs from 886 a year ago to 647 now, some observers predict that sub $2 prices will arrive soon. In contrast, gasoline prices have increased steadily and are now at uncomfortable levels. Nevertheless, the notion of rising commodity prices has been waning in recent weeks due to diminished expectations for another round of quantitative easing (QE). In turn, this has resulted in lower precious metal prices as well as lower prices of copper, nickel and aluminum.

A number of grain charts, including soybean, wheat and corn, also suggest that a correction to lower levels appears likely over the months just ahead.

Friday’s weaker-than-expected employment data, however, could revive the idea that QE is not entirely off the table. Increased signs of a more pronounced decline in global growth (particularly in the Euro zone and China) might also raise the prospect of more QE in the months just ahead.

For now, the Reuters/Jefferies CRB Total Return Index appears to be aimed for a test of key “cross” trend line support located at the 293.50 level. If that level fails to hold as support, however, the worry would be that a solid extension to the downside could result. While troublesome for commodity producers and farmers, such a break would be very positive news for consumers as well as for companies who are large commodity users. That being said, it is worth keeping a sharp eye on the 293.50 level.

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