By Millie Munshi
Sept. 11 (Bloomberg) -- The bear market in commodities may be nearing a bottom as the most volatile trading conditions since 1973 signal a possible reversal.
The CHART OF THE DAY shows the weekly historical volatility for the Reuters/Jefferies CRB Index of 19 raw materials rose to 27 percent yesterday, on a 10-week basis. Surges in volatility are a ``very hopeful, contrary'' indicator against the current trend in prices, said Chip Hanlon, who helps manage $1.5 billion as president of Delta Global Advisors Inc.
The only other time the volatility measure has risen above 25 percent was in August 1973, after the CRB jumped 24 percent in the previous six weeks. After volatility peaked at 32 on Sept. 7, 1973, the index began a four-week decline of 12 percent and headed for a three-month low in November of that year.
``Extreme spikes in volatility have tended to coincide with lows or peaks,'' Hanlon, who correctly predicted in January that industrial metals would fall this year, said yesterday by telephone from Huntington Beach, California. ``Even the true believers in commodities have thrown the baby out with the bath water on this bleak economic outlook, and things moved too fast. This is an indication prices may start to turn around soon.''
This year has been the most volatile for commodities since 1973. Ospraie Management LLC, the New York-based investment firm run by Dwight Anderson, last week shut its biggest fund after losses in commodity companies. RK Capital Management LLP lost as much as 30 percent last month as metals dropped.
``We've seen volatility ratchet up in metals, oil -- across the board,'' Ron Goodis, an Equidex Brokerage Group Inc. futures trading director in Closter, New Jersey, said in a telephone interview. ``It puts traders in a different mindset. In some ways, money can be made faster, but it doesn't mean it's easier.''
To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net
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