KCPO:- The Rubber Band Effect Strikes -11/22/2010

 

I was warning about the possibility of the rubber band effect may strike this market as it has been over-extending. Last week we really saw it strikes. Price went down to test a low of 3114 before snapping up again.  The Stochastic has now crossed down its 80's signal line while the MACD has turned negative. As the MACD is relatively "far" from its zero signal line, so I would not advocate a bit of caution here as the ADX continues to fall, the prior trend has fizzled out. Then please take note that  price has again closed above the upper Bollinger Band, this serves as a conflicting signal to the negative indicators.

 

The weekly chart suffers no damage for intra-week downward correction as price still maintain above the upper Bollinger Band. The Stochastic may has turned negative but it maintains above the 80's signal line, The MACD and the ADX continue to rise, confirming the trend is still intact. But as price is "far" from the upper Bollinger Band, we may see more of those rubber band effects occurring again.

Unlike many of the commodities charts, KCPO does not register any bearish divergence, so I would only look at any price retracement as a healthy correction in a strong bull trend. But with its intense volatility, it is getting more difficult to do position trading. And with the USD's increasing strength, it may be prudent to lessen our exposure in the buy side of the commodities.