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Commodities are in a ‘death cross’: Yamada

Talking Numbers

Louise Yamada, Managing Director of Louise Yamada Technical Research Advisors explains why she sees trouble ahead for commodities.

It's not just gold and silver down this year. Commodities across the board have been taking a hit in 2013. Wheat, gasoline, and both coffee and sugar are all down this year. Louise Yamada, Managing Director of Louise Yamada Technical Research Advisors, says it will only get tougher for commodities.

(Read: Gold slides as investors await guidance)

Yamada sees the Continuous Commodities Index (the CCI) as now testing an important level on the downside. The CCI is comprised of nineteen commodities as diverse crude oil, gold, live hogs, and orange juice. The index has dropped nearly 7% in the past year and closed at 517.08 on Monday.

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"Five hundred is the critical support level," says Yamada of the CCI. "It goes all the way back to the breakout point in 2010."

"What been happening over the past three years is a series of lower highs," says Yamada. "A break below [500] would indicate that there is more pain ahead."

(Read: Crude advances after US, China see manufacturing boost)

But it's not just the test of the 500 support level that makes Yamada bearish on commodities. She also sees the relationship between the 10-month and 20-month moving averages as now giving a sell signal.

"The 10-month moving average slipped under the 20-month moving average back in March 2012," notes Yamada. "That longer-term indication is considered a 'death cross' or a sell signal, very simplistically put. Both of those moving averages are continuing to decline, suggesting that the risk is greater than the reward potential at this point."

To see the rest of Yamada's analysis of what's next for commodities and what her price targets are for the CCI, watch the video above.

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