A Brief Follow up on Commodities
I began warning my subscribers of the less than positive developments in commodities back in February. The cyclical and statistical issues discussed there have continued to develop and a couple of weeks ago I wrote here about the structural non-confirmation that had occurred between commodities and equities. In that article I basically explained that because of the similar cyclical structure that had followed since the 2009 lows, the non-confirmation was a warning of deeper rooted economic issues, that it is a sign of deflationary pressure and that lower commodity prices should be expected.
Since the article posted here a couple of weeks ago, the CRB Index has dropped below its 2011 low. In fact, it has moved to levels not seen since October 2010. Crude oil has since dropped from the 106 range to the 93 range. Gold has dropped roughly 100 dollars in the last two weeks and the XAU has moved below its 2010 low.
As the commodity complex moves into cyclical low points, they will find a low and a rally will follow. The danger is that most will view the cyclical low points and the advance that follows as an indication that the decline is over. Well, the decline will be over, but based on the structural developments that have occurred, it should be temporary. Meaning that it should be a counter trend rally and still lower prices should follow. That said, there is a slight chance that the rally out of the next cyclical low point could evolve into something more meaningful and the recent weakness could prove to have been a mere correction. However, based on current evidence, such possibility looks to be rather remote. The key will be the structural developments that occur in conjunction with the advance and the behavior of the Cycle Turn Indicator. If the associated cyclical picture should begin to develop in a structurally positive manner, then so be it. At that point the currently negative setup will begin to change. However, if positive structural developments are not seen in association with the rally out of the next cyclical low point, then such rally should prove to be an opportunity to get out of any existing long positions before the next shoe drops. Again, either way, the key will be the cyclical structure and the behavior of the Cycle Turn Indicator. Whatever happens happens as I let the data stand on its own feet and merely follow its meaning. A perfect example of this is the warnings I gave my subscribers beginning back in February and the warnings that I posted here a couple of weeks ago. My hope is that the recent weakness seen in the commodity complex has gotten every ones attention and that they are now more objective in their views. Otherwise, being married to a position and a belief can be a very costly mistake. My approach is based on price action and the associated statistics, which is much more objective and is available in great detail in my monthly research letters and short-term updates. Nothing goes straight up or straight down. Knowing where the cyclical inflection points are due, when we have hit them, the degree of that inflection point and the statistical meaning of the short, intermediate and longer-term developments are vital in navigating any market. For now, the probe for the next inflection point remains intact. I have included long term charts of the CRB Index, crude oil, gold and the XAU below. Also included is a chart of Natural Gas, which is back to 1990 levels. Did anyone think the advance into 2008 would be a failure? Was the decline out of the 2008 high to current levels expected? Is this perhaps a precursor of what's to come in other areas? Never say never. The structural developments are key in every market. With that knowledge we have statistical expectations to guide us just as we did in anticipation of the recent weakness.
I have begun doing free Friday market audio commentary that is available at www.cyclesman.net so please begin joining me there. The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. In the April and May issue I cover the statistical implications for gold and the current cyclical and statistical implications for stock market. A subscription also includes very detailed slide show presentation on the big picture in equities, the 4-year cycle, commodities and what is expected to come. I also provide important turn point analysis using the unique Cycle Turn Indicator on stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.