Gann Global Financial

The overall pattern in the commodity prices is progressing as expected in light of what has taken place in the aftermath of this historic bust cycle. In looking at the Goldman Sachs commodity index which is representative of overall commodity prices which  is heavily weighted with the energy sector, we get a glimpse as to what is taking place in overall commodity prices.

There are a couple of keys that we have been conveying to subscribers. The first was that the expectation that coming up this July of 2008 high, probabilities were very high that we were paralleling the 1948, the 60-year cycle which WD Gann called The Great Cycle.

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If you join GGF Insiders, you can view the Essential Course, and read what Gann said about the 60-year cycle. This cycle is basically dictated by just about all of the major moves which have taken place since 1998-99 when the final low was established in commodity prices.

So, too, the bust cycle in 1948 coincided almost exactly with the timing in 2008. What we had set for subscribers was the completion of that bust cycle in 1948. The time period of the decline would have completed in about the first/second week of February.

Our low basis the cash actually occurred in February. Basis the actual date of the low was April 25th so that was completed at this point in time.

There are a number of observations that we’ve made for subscribers with respect to the expectation that this market was basing and a final low was in place. This observation was made on April 3rd, which would have been back at this point in time.

At this juncture I interpret this as a basing pattern given the likely stability in the economy as appears to be discounted by the trade in the stock market.

Commodity Market Forecast : Is a Low in Place?

I believe the probabilities have moved squarely in favor of a final commodity low being in place. We know from history that during historical deflations on the order of what we’ve experienced, the final bottoms in the stock market and the overall commodity market coincide very closely to one another.

We have the March 6th low in the stock market. We have a February 18th low in the Goldman Sachs index, and looking at all of the historic lows in stock and commodities after bust cycles we find that they coincide very closely in terms of culmination lows.

This shouldn’t surprise us. We basically have panic selling conditions in both the stock market and commodity related assets; the culmination point where capitulation panic point is hit at almost the exact same time.

Commodity Trading Range : Goldman Sachs

A recent observation that we made as of May 5th, we have exceeded the January and March commodity trading range high. You can see that we exceeded the 386 high basis the nearest futures. In March we made a slightly lower top at 383.75 and we have just pushed through this overhead resistance level as of this past week. A very interesting position that we find ourselves in in commodities.

In looking at the weekly chart of the Goldman Sachs, this is the same chart but this is the cash price, and the final low in the cash was February 19th and we had placed the projections based upon previous historic deflationary bust cycles.

We had made the projections off this February 19th low as to how the advance would proceed. You can see that we have spiked up very dramatically to the upside over the last two weeks. That has taken us out of this trading range which we saw on the daily chart.

You can see how far we have come to the downside, so by the law of action and reaction one would expect that this market is going to move higher based upon that. The question is, at what angle of ascent will it do so?

During the 60-year cycle in 1949, overall commodities followed this angle of ascent, and in 1920 it followed this angle of ascent. These are our observations in mid-April.

In the aftermath of the greatest commodity bust in US financial history, volatility has remained high but the price range in the Goldman Sachs index has been narrow. This is as we had forecasted based upon our closest fit historic precedence in 1920 and 1949. We’re taking the 1920 and 1949 cycles as the key cycles which most rhyme with what has taken place in our market.

Based upon the velocity of the decline the probabilities favor a final bear market low being in place similar to what occurred in 1920, 1949, and 1974. The most important of these cycles is the 60-year cycle which has demonstrated nothing short of astounding parallel to price moves in our commodity index over the past 10 years.

Based upon history at the completion of historic bust cycles, the dates of the final lows in both the stock market and commodity markets coincide very closely to one another. I believe this argues for final lows being in place as of February 19th, and commodity prices which is this low, and March 6th in the stock market.

That was the projection approximately almost a month ago with respect to what would be taking place, and of course, the stock market is consent(5:36) and continued to surge to the upside.

Here we have the commodity market index breaking out above these basing pattern lows over the last week.

1920 Commodity Cycle Precedent

In looking at the specific cycles, this is what occurred during the 1920 bust cycle. The commodity collapse which occurred after March 23, 1920.

This is the Gann Global Commodity Index (see chart in video), and I’ve not seen any commodity indices other than monthly average indices prior to 1957 which is the CRB Index. This is a daily index that we have constructed from our own internal database.

You’re looking at something that you’re not going to see anywhere else, at least I haven’t seen any of our competitors have it. One of the reasons being is that there is a huge, huge amount of data acquisition that we had to make as well as hand inputting prices back to the 1800s in order to learn what commodity bust cycles look like.

You can see that after this waterfall decline into the June 17th low in 1921, we experienced really what was a first leg up, it was rather gradual, into the April 1923 high.

The final low in the stock market was in August of 1921, so within two months of the commodity low the stock market established a final low. That 1921 low in the stock market, that started what would be the Roaring 20s into the blow-off top in 1929.

This was the start of what was, at that time, the greatest bull market in history in the stock market. We finally eclipsed that bull market during the 1990s into the culmination high in 2000. This was a bust cycle preceded what was at that time, the greatest bull market in the stocks.

Major Commodity Market Bull Markets: Historic Precedents

As you would expect, commodities also started what was a major bull market advance. This low, from June 17th to this April 25, 1923 high, this is what is graphically represented in this move off the lows in our market.

In other words, if we were to parallel what occurred in 1920 we would experience that kind of a move, then of course, a major correction, and then a move to new highs but overall a bull market.

Historic Market Analysis of Cycles in Commodities : Silver

In looking at a few of the individual commodities, and we are looking extensively at individual commodities during these cycles for subscribers at this time, for the silver market we had this crash in the price of silver.

This pretty much parallels our silver market declining from 1.37 an ounce to .52 an ounce. We experienced this surge to the upside and a corrective move into February of 1922 pushed incrementally into a new high and then moved sideways, moved to the side, so, needless to say, this was a very unexciting period for the silver market.

Silver has periods like that. It goes to sleep, and obviously we’ve had a very tremendous amount of activity in that market, but nonetheless, it did start a bull market so I do believe that the October low in the silver market is a final low.

These were the comments made for subscribers on May 4th. Like 1948, the bust cycle in commodity prices in 1919 was short-lived. I believe the odds favor our market having a kinship to these two precedents.

After the March 15, 1921 final bear market low, that’s in the silver, price surged 40% into the swing high October 18th and this was followed by a correction into the February 28, 1922 low – the correction there is very much within the realm of possibility. Our advance off the October 2008 low was a first leg up into the February 28th high. That’s our high just shy of 15.00 an ounce, similar to the advance off the March 5, 1921 low.

If so, the recent sell off could be a correction similar to the decline into the February 29, 1922 low. It may be that we have recently completed a correction in silver very similar to this 1922 correction and that would be followed by a push to possibly a new high for the move in our market.

We are watching the silver. It’s an interesting market to observe, but for our purposes in this video, really, what we’re wanting to do is to equip you with an understanding of what happens in the aftermath of what has occurred in the aftermath of historic bust cycles.

Commodity Market Analysis : Cotton

In looking at the cotton market, this is a market that after the July 1920 high, the market declined from 4375 to 1045 so very much on the order of the type of percentage declines that we have experienced in the energy complex into the recent lows for the move.

In the aftermath of that you can see that the market spent some time basing, touched the final low at 1045, and then we experienced this explosive really short-term move to the upside. The market advancing 109%, more than doubling in price in three months and 13 days.

We do know that in looking at the different markets, once the final bust cycle low was in place in 1921, for example, we looked at the silver market which advanced 40% during the first leg but the cotton market advanced 109%.

If a Commodity Market Low Has Been Established…

The key is if we are correct that a turn has occurred in the overall commodity prices to the upside, what we want to do, what the challenge is, is to get into those commodities with the highest relative strength; those that will lead the commodity board higher.

Our expectation on that, the key complex that we felt would do that is the soybean complex. We’re playing to what we felt would be our strengths, or the strengths of the board, and so far that has played out very well for us.

With respect to the overall progress of this bull market, you can see that that first advance was followed by a rather complex correction, another leg to the upside, complex correction, and finally topped out approximately 2½ years later.

It did fall short of the 1929 high so we do want to be aware that during this particular precedent, this 1920 precedent, the final top in 1920 was not exceeded. In fact, the prices, those prices were not touched really in most commodities until we entered the next inflationary cycle in the 1940s.

This equivalent high here in cotton in the overall commodities, as well as the cotton, we didn’t see those prices again until approximately 28 years later during the next major inflationary boom.

60-year Cycle Commodities

Our next index is the 1948. This is the 60-year cycle. A very different look than what occurred in 1920 in many respects. You can see here we experienced the real dramatic portion of the bear cycle following a July of 1948 high. Our top was on July 3, 2008.

This is one of the cycles that put us on alert that we were in real danger of seeing a commodity implosion and allowed us to issue an all-out sell signal on July 22nd. Actually, the high in our market was July 11th, and our all-out sell signal was July 22nd.

Then we experienced this dramatic decline in 1948 and our market declined basically on cue with what occurred with the 60-year cycle.

Now, after the 1949 low, this was the final low, we did experience a bull move into 1951 which was a higher top. One thing that I do want to reiterate, and I’ve probably mentioned this before, is that our market declined, percentage-wise a much greater decline, 70%, then what occurred during this 60-year cycle which declined approximately 27% from high to low.

Ours was much more dramatic in terms of price implosion and deflation so my expectation isn’t that our market is going to turn around, necessarily, and move to a new all-time high above the 2008 high. It’s too early to speculate on when that can take place.

In 1920 it wasn’t until 28 years later. In 1948, three years later it did push to an incremental new high. This is some of the weighing of the evidence that we will continue to do over a period of time.

The advance off the April 25th low was gradual during the first 12 months. If a final low is in place in our market, this would suggest our advance would be gradual given the high carrying charge premiums, especially in the energy complex this is what we continue to expect. This was on April 29th.

We expect higher prices. I’m going to come back to the precedent in 1949, if we were to experience the same angle of ascent or velocity of advance, then we would follow along something along the order of this move here in 1949 and that would be a leg up.

It was at that point in 1949 that the commodity prices really started to advance much more aggressively. We’ll come back to the chart here and see that between this April 25, 1949, and this high here was what was represented on that chart, we saw a correction, then we saw this major surge to the 1950 high.

What we can glean from this 60-year cycle is that we can expect some major surges to the upside in overall commodities, and what we will be doing for subscribers, and what we are doing right now is saying, “Which of these markets should lead the advance and be the strong sisters in the overall commodity advance?”

It’s very exciting period that we find ourselves in having really dodged the bullet with respect to the continued deflationary spiral. Both the stocks and commodities are telling us the crisis is complete. I believe that’s a very high probability that the bad news is behind us.

That’s not to say that there’s not going to be choppy trade, particularly in the stock market, but I’m going to leave that to another key video that I’m producing right now.

Lastly, in looking at this 60-year cycle, I do want to touch on the soybean market. During this period we saw this major decline in soybean prices. You can see that the price dropped from 4.43 a bushel to 2.15 a bushel, so an approximate 50% decline in price. Very close to our decline that we experienced in our soybean market in the soybean complex.

We experienced this minor basing pattern and then the market surged to the upside into the 1949 high. It may be that this is where we are in the soybeans right now. Based on the pattern and the formation it’s very possible that we are going to see a continued surge in the soybeans, but we’re down the road a ways in this leg up.

What is so interesting is that one, that leg up was complete. We saw this major decline which actually took out the February of 1949 low and then the market moved sideways from there.

It’s going to be a very interesting environment. It is an interesting environment that we find ourselves in, and so we’re trying to make the strategic moves in terms of profitable moves, one of which, right now, is aggressive long positions in the soybean oil from much lower prices right now. We’re starting to see the multiples really kick in as far as call options there. We’ll alert you.

I do believe there is another video we are producing next with regard to the stock market, giving you some historic perspective on that. I don’t think that you can separate an analysis in overall commodity prices from an analysis in the stock market.

Both of them are telling us that we turned the corner and that we should see price appreciation on both fronts, but that doesn’t mean there are not going to be major corrections. It’s the major corrections that we want to be looking to buy into. That is our philosophy.

Once a turn, a major trend occurs, we generally experience a first leg up and then a secondary correction. That is what occurred in the soybeans and the soybean meal. That secondary correction is the lowest risk point at which to enter long positions. That is what we’re looking for in the markets as far a philosophical advantage point and so we’ll see how it plays out.

We’ve come through some very, very difficult rapids, and we have some smooth waters here and the opportunity is great. I thank you for tuning in, and do avail yourself of the opportunity to get our latest thinking in the stock market.

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