by Bob Stokes
Updated: January 12, 2017
[Editor's Note: The text version of the story is below.]
There's an old saying on Wall Street that goes "buy low and sell high."
It's usually said in jest because it's a feat that's much easier said than done. History shows that most investors pile into bull markets just as they are about to end, and they do the opposite in bear markets: sell right near the bottom, when the fear is at its highest.
But there is a group of professional commodity traders who consistently pull it off. They're called "commercials."
This is from our May 2016 Elliott Wave Theorist:
The Commodity Futures Trading Commission follows the activity of three different groups of participants in the commodity markets: small traders, large traders and commercials. Small traders are typically on the wrong side of the market at the turns. You might think that large traders, because they have a lot more money, are right a lot, but they are likewise usually wrong at the turns. The commercials are the only participants in commodity markets who generally buy low and sell high. … The reason: Commercials are in the business of manufacturing, not speculating, so they think economically rather than financially. … They perceive [commodities] as economic goods, so they search out bargains just as a consumer does in the store.
This knowledge, in conjunction with the Elliott wave model, helped us to make a key bullish gold forecast right near the end of a big sell-off. This chart and commentary are from our December 2015 Elliott Wave Financial Forecast:
“Sharp rally imminent.” Gold prices are in the late stages of an ending diagonal, which, when complete, will finish a five-wave decline from the September 2011 peak. … Large Speculators hold their smallest net-long position in 12½ years, since April 2003. Back then, gold rallied nearly 30% over the following eight months. The bottom graph on the chart shows that Commercials currently hold their smallest net-short position since the two weeks surrounding the July low, when gold started an 11% rally to October 12. Prior to that it’s been 14 years, since December 2001, that Commercials have held a smaller net-short position. As the arrows on the chart show, each of the prior instances that the Large Specs and Commercials have held similar-sized positions since gold’s September 2011 peak have led to rallies.
That forecast for a gold rally was made on the very day of gold's Dec. 3, 2015 low of $1,046.20! Gold proceeded to rally 30% from that bottom.
Fast forward seven months: Here are a chart and commentary from our July 2016 Financial Forecast, using market data through June 30.
In December, the Financial Forecast cited a multi-year extreme in the net short position of Large Speculators and a concurrent extreme in the net long position of Commercials, and forecast the start of a rally. Gold has since gained 30%. Large Speculators and Commercials now hold a record number of futures and options contracts in the opposite direction.
That implied the end of gold’s rally. Just seven days later, on July 6, 2016, gold's price hit a high of $1375, reversed and went on a five-month sell-off that took it to a low of $1124 an ounce in December.
Gold is just one market where we've kept subscribers ahead of trend changes.
Now, at the start of 2017, we're seeing other markets – like bonds and crude oil, to name just a couple --where the activity of the "commercials" is lining up beautifully with the Elliott Wave model, implying big moves ahead.