Eoin Treacy's view The last month has been particularly tumultuous in the commodity markets. A number of previously high flying markets have pulled back sharply adding a degree of uncertainty to investor sentiment which was largely absent for most of April. High profile markets such as crude oil and silver experienced large downward dynamics and a number of others such as feeder cattle, lumber, cotton and sugar have also pulled back sharply.

Despite the perception that bullish arguments were incontrovertible, particularly for agricultural commodities, higher margin requirements have been a significant headwind. Squeezing some speculators out of the market created a self feeding decline. Now however, a large number of commodities have completely reverted to their means and appear to be in the process of finding support. I believe it may be instructive to review some examples

Brent crude has a history of becoming overextended relative to a trend mean such as the 200-day MA before posting a large downward dynamic which initiates a swift reversion. This was especially evident when it advanced in ranging uptrends between 2004 and 2006 and for most of 2009 and early 2010. The pullback in the first week of May came within $4 of the MA and has subsequently paused above it.

The speed of the pullback was a major inconsistency in what had previously been a highly consistent trend. The most likely scenario is that some additional time is needed to complete a period of support building before a move to new highs can be supported. Prices have held above the May 6th low near $105 and a sustained move below that level would be required to begin to question the support building hypothesis.

This log scale chart of silver over the last decade illustrates how prone silver is to accelerations which climax with extremely large downward dynamics. The recent upward acceleration was particularly large and the subsequent decline traumatic. However, as with crude oil above, it has found support above the 200-day MA and appears to be in the process of finding support. A sustained move below the May 12th low near $32 would be required to question this hypothesis.

Support building is characterised by a war between supply and demand as they come back into equilibrium and is therefore likely to be volatile. So long as prices continue to find support in the region of the 200-day MA, the medium-term bullish outlook can continue to be given the benefit of the doubt.

Cotton broke out of a 36-year range in October and doubled before peaking in March and pulling back sharply over the last month. It appears to be in the process of finding support in the region of the 200-day MA, currently near 140¢, and will need to hold above that level to indicate demand is returning to dominance beyond the short term.

In nominal terms, feeder cattle has been trending gradually higher over the last 37 years. In inflation adjusted terms, it has just broken out of a 15-year base. Prices hit a medium-term peak above $140 in early April and have pulled back to test the upper side of the previous 6-year range and the 200-day MA. It appears to be in the process of finding support and a sustained move below $120 would be required to question that hypothesis.

Lumber has also been notable for the depth of its recent pullback. It is now testing the progression of higher major reaction lows evident since early 2009. Over the last two days it has equalled the largest of the rallies which punctuated the decline to date and is in the process of forming a weekly key reversal. A clear downward dynamic would be required to check current scope for at least a short-term relief rally. Prices will need to find support above this week's low on a subsequent pullback to indicate that a medium-term low has been reached.

The commodity complex is currently demonstrating a higher degree of commonality in finding at least short-term support, often in the region of the 200-day MA, following a sharp decline over the last month. If past performance is any guide, support building can be expected to be volatile for many of the sector's constituents but medium-term recovery potential can be given the benefit of the doubt provide the recent lows hold.