For many investors in hard assets, the first week of May felt like one long "falling dream." The kind where you're walking along, without a care in the world, when suddenly, the ground opens up beneath and you start plunging headlong into an infinite black abyss. You lurch awake unable to shake that stomach-churning sensation of having no solid base below.
To wit: On Thursday, May 5, the Reuters-Jefferies CRB Index of commodities plummeted 5% in its fifth steepest one-day decline ever. The next day, the final damage was tallied: In five days, everything from copper to cocoa, soybeans to silver, turned down in a gut-wrenching rout that slashed $99 billion off the commodity markets' value.
In the words of one news source:
"This is one for the books. You had the sense that prices had gone up too far too fast. People were leaning against the door and waiting for a signal." (Mercurynews.com)
One problem: Since the start of 2011, the only door commodity traders have been leaning against is the one leading onto the bullish bandwagon. And the only "signal" they've been waiting for is the "green light" to more gains. Here are just a couple of reminders:
"Food, Glorious Food!" exclaimed a recent Barron's article. "Long-term bullish trends are solid for a host of agricultural commodities."
Added another -- "Commodities have the wind at their back. I'm a big believer that the commodity bull is here to stay." (National Post)
Not to mention the fact that one day before the CRB Index's May 5 crash, the world's largest commodities trading company -- Glencore -- announced plans to debut an $11 billion IPO.
"Fundamental" analysts simply extend existing trends forward; that's the basis of their analysis. But the Elliott wave method actually helps you to forecast a change in trend.
Six months ago, in the December 2010 Monthly Futures Junctures, EWI's chief commodity analyst and long-time Futures Junctures Service editor Jeffrey Kennedy kept subscribers on high alert for a turn. In the issue, Jeffrey presented the following chart of the Continuous Commodity Index and wrote:
"What we witnessed in commodities this year [2010 -- Ed.] begs the question: Will they continue to advance? In many, wave patterns indeed argue for additional rally into the first quarter of 2011. Even so, these commodities are still very mature within their Elliott wave progressions, especially the high flyers. This means that the upside is limited and that the next significant move will be down. Examples of a few of this year's high flyers are sugar, cotton, and wheat."
On April 20, the CCI Index peaked right in the middle of Jeffrey's cited target range and has been falling since.
This is not a dream. It's a very real, very crucial stage in the Continuous Commodity Index's long-developing Elliott wave pattern. Wake up to the big picture today via a risk-free Futures Junctures Service subscription.
Editor's Note: The May 6, 2011 Short Term Update goes outside the box and presents a riveting close-up of the Reuters/Jefferies CRB Index since 2008. One look at this chart and you will see whether commodity bulls should be headed for the exits. Get instant access to Short Term Update today.