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Cramer: Commodity rally could head higher

Since the market bottomed in mid-February, commodities have dramatically rebounded from their lows. Jim Cramer has watched as everything from copper, iron ore, aluminum to oil have worked their way higher.

While the rally took a break on Tuesday, commodities have been on the decline for years, leading Cramer to ask if this is a genuine rally or simply a long overdue, oversold bounce.

Cramer turned to the help of Carley Garner to look at the charts and assess what the future of the commodity complex could look like. Garner is a technician and commodities expert who is the co-founder of DeCarley Trading and a colleague of Cramer's at RealMoney.com.

Garner found that while it has been tough to be bullish on commodities in the past, the group could finally be showing promise. This is significant to Cramer, as the strength in commodities is a huge reason why the stock market has been able to roar higher since February.



Looking at the weekly chart of the Dow Jones commodity index, it seemed to Garner that commodities could be on the verge of breaking out above its multi-month downtrend line. If the commodity index can clear the hurdle of resistance below $15, Garner believes it could soar toward $20 — a level not seen since late 2014.

"Yes, despite all of the naysayers, commodities have finally caught a bid, after bleeding value for ages," Cramer said.

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Garner also took a look at the relative strength index, or RSI, which is used as a powerful momentum indicator. The RSI for the commodity index has been working its way higher in recent weeks after spending months in a downturn, which suggested to her that there could be an even larger rally underlying the activity of the index.

Ultimately, Garner thinks that big institutional money managers are now making their move, which explains why copper and gold have rebounded. Agricultural commodities such as grains and livestock products have also made gains in recent weeks.

Additionally, Cramer does not want investors to forget about the impact of the dollar. Many commodities are priced in dollars, but with the greenback weakening, Garner said commodity prices should continue to rise even if the fundamentals aren't that great.

"While I personally believe that the price of oil is likely to stay lower for longer, that doesn't mean that metals or grains or pork bellies can't go higher from here. Wherever you come down on this argument, the idea that this commodity rally could have another leg up is not to be dismissed," Cramer said.

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