Excerpt from: “Crystal Ball for Investing and Trading” Book.
Status of Commodity Index
The commodities are tracked through the Commodity Research Index, called CRY0 in TC2000. Here we analyze the status of CRY0, Gold, and Crude Oil.
Figure 13.20 shows a monthly chart of CRY0 from mid-1991 to March 20, 2020.
Figure 13.20 – Charts courtesy of TC2000.com
CRY0 tracks quite well the market phases of inflation and deflation. When it trends upward, it signals phases of inflation and when downward, deflation. Likewise, when it goes up, it signals a prevailing economic demand side and when down, a weak demand, and a strong supply side. Deflation is the consequence of vanishing wealth because of contracting demand side, due to recession or depression in the economy and finances.
At the beginning of the chart, CRY0 was in correction mode until a double bottom W-type trend reversal. Starting from Q4 2001, it rallied until Q2 2008. Then, commodities crashed brutally and lost more than 50% of its value from Q3, 2008 to Q1, 2009, in a short period of some nine months.
This loss was caused by the crash of financial markets during subwave C of Dow Jones.
Owing to the US QE plans, the commodity prices were re-inflated from Q1, 2009 to Q2 2011 when a massive amount of fresh money was injected in the financial markets by the Fed and other central bankers. Since Q2, 2011, the CRY0 developed within a steep down trending channel until Q1, 2016.
Since 2016, the index was fluctuating for some times within a horizontal canal. However, it started a nosedive since January 6, 2020.
The CRY0 pattern conveys a scary signal. In principle, when the stock markets are close to all-time highs, the CRY0 should also be close to all-time high. However, this is not the case since 2008 until December 2019.
From Crystal Ball wave analysis viewpoint, CRY0 seems to develop a zigzag pattern. Its subwave A, bearish, started from the all-time high of 2008 to end in Q1, 2009. Then its subwave B, bullish, brought the CRY0 upward until Q2, 2011. Subwave C, bearish, started in Q2, 2011 and should subdivide into five motive sub-subwaves.
Commodities should find support well below 100 points until November 9, 2022 (or October 21, 2021).
Why does CRY0 convey a scary signal? The reason is that when DJ-30 starts its plunge until November 2022, a colossal amount of invested wealth in financial markets vanishes and the bubbles pop up. The loss of wealth compresses the demand side of the economy while the supply side remains stable. The compression of the demand side should result in an increase in the buying power of money. Consequently, the price of goods and services falls. This will be the effect of screaming deflationary signal of CRY0.
A plunge in the price of commodities will hurt mostly the countries whose economies depend heavily on the export of their raw natural resources. Australia, Canada, and Russia, but also the developing as well as oil producing Middle East countries, will be hurt most.
For further details concerning deflation, please refer to Chapter 9.
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