Today was one of the more fascinating days I’ve seen in the financial markets in a long time.

The gold advanced and exceeded the January and early April double top at the same time the Dollar surged to new 11-month highs.  This flight to safe havens precipitated in large part by Standard and Poors downgrading Greece and Portugal’s credit ratings, was in stark contrast to today’s severe sell-offs in the Stock Market and Crude Oil.

During today’s trade, we just missed adding to long positions on the projected breakout in the Gold.

At the same time, whereas the Crude Oil declined to a new recent low, the Heating Oil and Gasoline are showing incredible resiliency.

We still have orders to add to long positions in the energy complex if the Heating Oil follows the Gold into new highs for the bull market.

In this video, I talk about the line in the sand which I believe is drawn between the commodity bulls and bears.  If it is resolved to the upside, these markets should continue to run away to the upside.  If prices fail from here, the probabilities will decline dramatically for higher prices.  This adds up to the perfect scenario in which we can potentially cut our losses and let our profits run.

* Please comment on the video at the bottom of the page *

Today I recorded a new 19-minute video revealing our current research as it relates to the Stock Market, Crude Oil and Soybeans.

The S&P 500, Crude Oil and Soybeans are the three markets we have keyed in on.

All three established highs on June 11.

In each of these markets, we had projections for sharp “corrections”.

In all three of these markets, the sell-offs this past week carried prices to new lows for the moves.

In all three of these markets, we currently have short positions.

How much further do we have to go to the downside?  That is the question we are currently addressing for subscribers.

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If you feel the research we provided in this video can help you make investment and trading decisions, take another couple minutes and subscribe to a one-month trial to one of our service packages.

Financial Forecasting Package – $47 per month (Market Coverage: S&P 500, Dow Jones, Bonds, Gold, Silver, Platinum, U.S. Dollar)

Commodity Forecasting Package – $67 per month (Market Coverage: Crude Oil, Energy Markets, CRB Index, Goldman Sachs, Soybeans, Corn, Wheat, Cotton, Sugar, Coffee)

Complete Forecasting Package (Financial & Commodity Markets) – $97 per month (Market Coverage: S&P 500, Dow Jones, Bonds, Gold, Silver, Platinum, U.S. Dollar, Crude Oil, Energy Markets, CRB Index, Goldman Sachs, Soybeans, Corn, Wheat, Cotton, Sugar, Coffee)

One hundred and fifty percent long crude oil positions, those options have just about doubled in price and that market has, in seven days, declined 20%. Seven trading days. The velocity of the move has been quite astounding.

The August beans, now half of our positions are short, half are short the August meal, and the expectation is the meal should be the weaker of the two in that it is in the most overbought position. In shorts from 11.28 in the August soybeans, we closed on Friday at 10.44, and the August meal on shorts from 340 we continue to hold those positions as well.

We should be in great shape as far as the overall cycle in the soybeans being short. Now, in this chart, what I have is the crude oil nearest futures contract and the bull market that led to the 2008 high. I’ve shown this chart before, but I’m going to give you some projections here.

The bull market in the 2008 high is obviously one of the great inflation rate bull markets in history and was led by the energy complex, the crude oil advancing over 1,000% in price. We know from history that every bull market that has experienced that type of a percentage advance has always been followed by a bear market on the order of what we experienced.

It was no mystery, this bear market unfolding to the downside like this, down 78% in five months, nine days. By the law of action and reaction, the bigger the bull, the bigger the bear. We of course saw that in the tech sector into the blow off advance into the 2000 high in the Nasdaq. The greatest bull market in stock market history being followed by a 78% decline in the Nasdaq.

This is what happens when markets become extremely overbought. Once the low wasn’t in the crude oil, we looked at the other great inflationary bull markets and wipeout bust cycles in history. The cotton market in 1964 was the leading commodity in terms of the advance into the Civil War inflationary bull market.

Once that market established the final top, experienced a crash in price as we did, there was a huge advance. It was a bear market rally in the cotton into what would have been the equivalent of about $55 in the crude oil, so we are looking at the rallies that took place after these great bulls followed by historic bear markets to get a read.

Trade Action in Crude Oil and What it Means

We’d had this in advance of this rally in the crude oil, so it’s no mystery why we would experience this rally of the magnitude that we have in the crude oil. The silver, this was the advance. The cotton in 1920, this was the advance. The sugar in 1974 led the agricultural markets higher, this was the advance.

Very significant percentage moves to the upside. This overall advance in the crude oil, 136%, is an incredible move in a relatively short period of time as what would be expected based upon history. We have these four historic precedents. These were the markets basically that led the previous great bull market advances.

The cotton in 1864 was the leader in the Civil War bull market into the 1920 high. Sugar was the leader in the great agricultural boom in the early seventies and the 1974 high. Many of you know that the silver market was the leader into the blow off top in 1980. The crude oil is in very good company as far as great historic inflationary boom, blow-offs, and bear markets that followed.

Okay, now moving to the next step. Based upon the June 30th high in the crude oil, the question is what will we expect next? Three of these markets, the sugar in ’74, silver ’80, and cotton in 1864, these were bear market rallies. Actually, the bear market rallies were followed by next legs down in overall bears.

The red represents legs down in bear markets. By contrast, the cotton market in 1920, this was a first leg up in a bull market. That’s why it’s in green. Once the top was in place, we experienced a correction in a bull market and this was followed by the resumption of the bull market.

Forecasting Overall Commodities

What we’ve been telling subscribers is that what we believe is that a final low is in place in commodities. This bust cycle is going to be akin to the 1920 and 1948 bust cycles and not akin to the 1980 and 1864 bust cycles, which were long-term deflationary bear markets.

The 1920 and 1948 were relatively short-lived once all of the deflationary pressure and the panic selling was done, final low culminations took place and then the long-term bull market started from there. I believe that that’s what our market is going to do.

In terms of these precedents, that would place us most closely akin to the 1920 cotton market. Let’s look at this. After the high was established, you can see that the angle of descent in the sugar market in the 1974 was this, cotton in 1864, silver in 1980. Protracted legs down in what were overall bear markets, and none of these markets established final lows, even at this point.

These were lows prior to bear market rallies, then other legs to the downside. Now, the cotton, on the other hand, the correction in the cotton – and it was very significant – bottomed out in what would be basically December first in our market. The top on June 30th, then there was about a five-month correction in the cotton in 1920 before the resumption of the bull market.

However, after the top, this angle here shows the first sell off in the cotton in 1920. It was like this violent sell off, and then there was basically zig-zag trade and ultimately we went to an incremental new low beneath what would be the equivalent of about 55 dollars in the crude oil.

Pretty severe angle of descent here after the final top was in place, and you can see that our crude oil, I mean, seven days of trade, we’ve clipped off 20% of the decline, so we’re definitely oversold on a short-term basis.

Now, in terms of the observation going into Monday, relative to our historic precedents’ prices running ahead of time. On this basis once this emotional sell off is complete, the market would need to experience a rally from the oversold condition, or experience consolidation before the resumption of the decline.

Given this windfall situation in our long put options, it is prudent to look for a point to take at least partial profits. That’s what we’re doing at this point in time for subscribers since we’re extremely oversold. Once this selling pressure is off there should be some backing and filling at minimum and possibly a snapback rally.

Gann Global Proprietary Commodity Index

In terms of this chart, this is the Gann Global Commodity Index (see video) during the Great Depression. This is a daily index that we compiled after accumulating the historic data. The decline that we experienced in our commodity bear market followed this angle of descent. We declined 66% in seven months and seven days after establishing the July or ’08 tie.

During the Great Depression, it was a much more protracted decline. It was more severe in percentage terms, but it took longer. The velocity of our decline is much greater than occurred in commodities during the Great Depression. This is an interesting thing to consider.

Now, one of the reasons I’m showing this chart is that our decline in the stock market, our bear market was the second greatest in history after the Great Depression. Our bear market in commodities was the second greatest in history after the Great Depression. We certainly have to be looking at that precedent for clues as to what can take place in our market.

One of the things I wanted to point out in this chart relates to that. First of all, we’ve already dismissed that we are following the DNA of a Great Depression in our market. We have a severe recession, but our projections show a final low is in place in the stock market and likely in the commodities.

However, notice that once the stock market put in a final low in August of 1932. This is actually a commodity chart, but stocks put out their final lows with the Great Depression in August of 1932. Commodities established this intermediate low about two months before the final stock market bottom. We experienced this pretty sharp rally, the sharpest that we had seen since the bear market started, and then we went to a new low into February of ’33.

That decline coincided with a bull market correction in stocks. It’d be great if I had the stock market side by side. In other words, the commodities made a new low, whereas stocks were making a higher bottom. There was bullish divergence in commodities.

The reason I show this is that we do have to appreciate that at a potential final low in the stock markets. Commodities still struggled in 1932, and obviously we are bearish over the short and intermediate term in commodities, although we’ve already seen a very significant decline. The 1932 precedent does lend itself to adding additional credence to our expectation to lower prices and commodities.

Goldman Sachs Analysis

Now, looking at the Goldman Sachs index, this market has come down very quickly. One of the things I did was in setting up the shorts in these markets, particularly in the crude oil, was kind of to lambast the popular opinion. These are comments that I’ve made previously with regard to coming out and talking about $85 crude oil when it’s at $70 a barrel. In a sense, lambasting the media for beating the drumbeat, I said here. This was back on July 3rd, right up towards the highs here.

This was on June 20th, just after the top, I said, “This is at a time when prognosticators, economists, the media, and the public are talking about the perpetuation of the current advance. Yes, I’m bullish, but short term and intermediate term, not in your life!”

So in the aftermath of that, we’ve seen this dramatic sell off. Not a surprise.  This is by virtue of the markets conforming to my expectations. The odds continue to favor more downside, and selling by those on the wrong side of the markets fuels additional selling.

The decline on the Goldman Sachs is one day shy of being one month long. My expectation is for this projected correction to consume more than that. Typically, corrections do. However, on a short-term basis we are oversold.3

August Crude Oil Analysis and Forecast

Now, moving out to the August crude, you can see here’s the seven day decline that we’ve experienced into Friday’s lows at 58.72 basis the August. This was on July 8th, I said “Anyone betting on the economy by holding either long positions in the stock market or long positions in commodities is receiving a rude awakening.”

They can be assured there are investors and speculators who have a commitment to long positions in both and are getting hurt in both simultaneously. This increases the probability the declines will be sharp, potentially short-lived, as these ill-fated longs exposing people to greater risks than they could have intended will likely be unwound at the same time due to panic margin call selling.

This is providing an ideal playing field for our current short positions and increases the odds the projected higher bottoms in the S&P 500 and crude oil will be completed at approximately the same time.

So we have the stock market put on its top on June 11th, the crude oil put on its top on June 11th, the soybeans put on their top on June 11th, so we are seeing the commodities continue to move, the board move together. This deflationary move is a negative omen for the stock market, and any weakness in the stock market is a negative omen for the commodities.

They should be moving hand-in-hand to the downside. Now, the comment that we had in the aftermath of Friday’s trade, we have declined 20% in seven days. Given the velocity of the decline, it is reasonable to expect the market to run stops beneath the minor low at 57.52.

Here is this minor low, which was followed by the final surge to the upside. We’re coming down at great velocity as well, and so we can be assured that there are some sale stops beneath that low. If this takes place in short order, and that appears likely, it would make sense to take partial profits. At this point, if we can see the market break below this 57.52, obviously we’re going to be watching to see what the stock market is doing as well.

If we can break that 57.52 in a relatively short period of time, based upon the oversold condition it’s likely it’ll be prudent to take at least partial profits. Then if we see consolidation over rally, we would look to re-enter put positions and likely buy some further out of the money option since we do expect that definitely this April low would be broken at approximately $51, and a very good possibility that the 43 low will be broken.

The contract low went through in one of our previous videos, the huge carrying charge premium annualized at 30% suggests that this market, once it comes down, could take this 43 out, but would still be well above the nearest futures low, which was at approximately $32 a barrel.

If you understand carrying charge premiums, sometimes they can be excessive, in other words, distant contracts trading way above the front month contracts. That’s the case in the crude oil, and usually in those situations, it means the market does need to experience a basing pattern and that sets the stage for, in this case, what would be a second leg up in a bull market.

This correction, believe it or not, could carry and even break contract lows, establish a higher bottom basis the nearest futures, and then we would be off to another leg up in an overall bull market. In looking at the cash, the comment that I made and related to the both overbought and high carrying charge situation, my expectation is the cash comes down, it could break this 45.88.

If that were to happen in the cash, then our futures contracts would be very close to breaking contract lows. You can see that the cash low for the bear market was all the way down at 31.81, so a decline to 45.88, while it would take out potentially contract lows in the futures, it’s still way above the lows basis the cash.

The comment here “Relative to the 136% advance, the current decline has been relatively modest having retraced as much as 31% of the overall advance.” That’s where we’ve come to so far as of Friday. “Probabilities are greatly in favor of this correction being more severe and more complex than what we’ve experienced thus far.”

Analyzing the Greatest Bear Market Declines in Stock Market History

Drafting down to the S&P 500, in the aftermath of first legs up in the great bear markets in history, the greatest bear market declines in history. The first legs up were uniformly quite violent, snapback rallies from extreme oversold conditions, and then the secondary corrections took place in the S&P 500.

Our projections ideally would be to see the S&P 500 drop down to the 835, 840 level, minimum basis the cash. That would replicate the 1938 decline. The 1932 decline was much more extensive in terms of time consumed and percentage retracement of the first leg up. You can see that these corrections were at times very short-lived, very violent.

On that basis, if we have completed a first leg up in a long term bull market in the stocks, then there is no expectation that the correction would be this shallow to 869.32, which is our low so far. We should see more downside here. Obviously, with the crude oil dropping 20%, that should be a negative reflection on the stock market that there should be a sell off of a higher order than what we’ve seen so far.

In looking at the September S&P 500, which is the trading contract this last week, we did break below all of this consolidation area since the May 15th low. That was 873.10, we dropped to 865½, so a little less than eight points into new lows. A lot of sell stops hit down there, no follow through to the downside, but if we break this low decisively by approximately 400 points, the likelihood that we’d get confirmation that the down trend is still in effect.

However, keep in mind that what we have here in terms of our shorts, this is a countertrend play in our estimation. We are short the market. Generally we want to be on the long side of the market in favor of the trend, once a bull market is in force which we believe is the case here. But all of our work showed us that this correction should be violent and therefore playable on the short side.

It’s going to be very interesting to see how it plays out. My expectation is that we have shorts, expecting to see lower prices here. We shorted right at this 917 level so I’ll have a huge breakaway the day that we got short with some follow through here. It’s just going to be interesting to see how things play out. This is a moving target from the standpoint of how the trade is playing out day to day. Crude oil is extremely oversold here. Obviously that plays into the equation as well since all these markets are moving in tandem basically. So we’ll be updating you as far as the returns and additional trade comes in. Have a good day and profitable trading.

We would fully expect that based upon the 1920 precedent, 1932, the Great Depression precedent, 1948 precedent, 1974, and 1980 precedents that there would be a very close association between what’s taking place in the stock market and what’s taking place in overall commodities. We’ve not been disappointed by what’s taken place in the markets. They are moving in tandem, even to the point that they have exactly the same highs in place. As we’ve seen, the crude oil drop to new recent lows, the Goldman Sachs dropped to new recent lows, and the S&P 500 closed on Thursday just 900 points from the recent low.

The break of the low will give us confirmation. We’ve seen this shift, not just in commodity trading and expectations and commodities, but this shift in the stock market and expectations. This is as we would expect during this portion of the economy. One of the things as far as the psychology of the markets, as we had had all of this bullish talk at the top of this rally in both commodities and in the stock market, which was very problematic. I’m going to go into that briefly in this update.

Currently for subscribers, we entered short positions on the electronic session on Wednesday going into Thursday at 917.20. The S&P 500 closed at approximately 893. We have buy stops in place for current subscribers. The risk-reward for this trade is 8:1.

Expectations in Entering S&P 500 Trade

This is what we expected going in. This was the day that we had recommended the trade. This should be the market’s last stand if we’re to move lower. If we are right in our forecast and successful in the trade, the risk-reward stands at 8:1. That was written as of July 2nd.

Also, on 150% long December crude oil put options, we entered those with the market trading at approximately 71.00. We closed into new lows on Thursday. The electronic session carried prices into the mid-65 level, so we are approximately eight dollars off the highs in a heartbeat, in less than a week.

In looking at the S&P 500, the pattern has been quite remarkable. The rally which we experienced off the final low on March 6th exceeded the January 6th bear market rally high. That was our last rally before the final decline into the culmination low on March 6th.

In this rally we experienced a one, two, three minor breakout above that January 6th bear market rally high, followed by a failure to the downside. A ton of buy stops would have been hit on the rally above that January high. It was a defining high on the chart, and technicians placed their buy stops above previous highs so we can be assured a significant number and significant contingent of shorts would have been stopped out and also would have resulted in many people entering long positions on the “breakout.”

On June 30th, this was our comment with regards to, then this minor rally which we experienced which also was a one, two, three above these minor highs. We said “We ran stops above the minor retracement high of 2480 without follow-through,” again, running stops in the market. Meanwhile, in light of today’s reversal, our exit point has become more decisive. In other words, in light of this third failure we entered short positions right here at 917.20, and they pulled the carpet out from underneath this market. It’s going to be very interesting to see what Monday’s trade brings since we’re within a stone’s throw of the low for the move at 884.30.

The comment that we made for subscribers was “The rule of three has now played out twice in the S&P 500, and this market should be in a weak position.”

Stock Market Forecast Using At Cash Prices

In looking at the cash chart here of the S&P 500, what we have is the June 11th high, as I mentioned, at 956.23. These were the corrections which took place in the aftermath of the greatest first legs up in history going back to 1886. Ours is the second greatest legs up in history behind the first leg up from the 1932 lows, the Great Depression low, which was followed by a correction.

That correction in 1932 is represented by this green projection line. What we have and what you can see here is that if we are going to experience a correction in an overall bull market, which is what I believe that we’re in, then the market should hit at least the 830 level based upon the 1938 precedent.

What we’re showing on our short positions, since we have just a 1200 point risk on these shorts, is that if we hit the 830 level, which is a minimum objective, then we would have approximately a 7-8:1 risk-reward on this trade. We would make eight times what we’re risking. That type of a multiple is ideal.

What I wanted to point out, and what we pointed out to subscribers is that while it’s true that in 1932 the correction was much more complex than occurred in these other six precedents, and I’m showing in this chart the S&P 500 from 1932, the first leg up rally high September 7th to the February 27th low, this decline from here to here is what is represented by this projection line in our market.

What you can see here is that initially after this high, this market experienced a very severe decline between September 7th and October 10th. From there the market experienced some sideways trade, then finally the bottom of that trading range was broken and the market moved lower into what was a final capitulation low, a higher low in the overall bull market, a secondary higher bottom.

That, by the way, led to 120% advance to the upside – a secondary higher bottom – but you can see this decline was very painful coming on the heels of the bottom of the Great Depression. The stock market and the economy were still very problematic. We have to understand that our bear market at 58% was the second greatest behind the Great Depression. Our first leg up off the lows was the second greatest behind this first leg up, so it is very possible that our overall decline is going to be a complex and difficult affair for us.

The initial decline relative to the 1932 market is this blue line here. What we have is that this decline from September 10th to October 10th, if we were to unfold in similar fashion, then our market would have the kind of weakness that would carry us down to this level. Now, obviously the market has not confirmed that we are in that same kind of a weak position, but what we’ve conveyed to subscribers is that this market is running behind time. There’s no question that, if indeed we’re in the midst of a correction, gravity can take hold of this market and we need to play catch-up with these other markets.

It’s going to be very interesting this week starting on Monday, July 6th, just to see how this market responds. I believe that Friday’s trade was decisive with respect to the fact that we are in the midst of what should be a very sharp, but possibly short-lived correction prior to what will be a second leg up in an overall bull market. That’s buying at the bottom of a correction prior to a resumption of a bull market. I said this before, and if you’ve not heard our stuff before I’m going to say it for the first time; the reality is that in looking at history, the history of markets, we have over 500 years of daily price data going back, cotton going back to 1812.

We’ve looked at bull markets. Our lowest risk point to enter long positions is once a final low is in place and it’s confirmed that the final low is in place, which we have in the stock market right now, the initial first leg up is followed by a secondary correction, and it’s the secondary correction which is a correction in a bull market that sets the stage for what is the lowest risk opportunity.

In the words of W.D. Gann, the legendary teacher and trader, he said:

“Always look for that secondary correction to be a buyer. That’s the lowest risk point at which to enter long positions in a market.”

That’s because bottom-picking is a much more difficult affair than it is once a market confirms a low is in place and buying on weakness. Just so you know, the great promise that we have held out to us from the markets, if our projections continue to play out, it will be that this will be a sharp correction and sets the stage for a continuation of the bull.

No question, at the top is where you get all bullish news. The media was talking about the recovery and that things were getting better, all the news items coming out as bullish, all the news items coming out down here as negative. If we see a severe correction the news is going to get negative again and that is going to be the perfect point in terms of psychology for us to enter long positions, to go opposite the crowd.

Commodity Price Analysis and the Goldman Sachs Index

Now in looking at the Goldman Sachs index, I want to give a couple of observations here. This was as of June 20th, when we were approximately just after the highs here on June 11th, so this is the observation.

What stock market analysts are unaware of by virtue of not having access to a historic commodity price index during other boom and bust cycles is that stock and commodity movements during this portion of the cycle are joined at the hip. This is what makes a potential importance to this June 11th high so intriguing. This is at a time when prognosticators, economists, the media, and the public are talking about the perpetuation of the current advance. Yes, bullish long term, but short term and intermediate term? Not on your life! That was said prior to recent decline into new lows.

On July 3rd, I said “I view the new low on Thursday in the Goldman Sachs as an omen. We are in the midst of a severe correction. If so, I would expect the media to start pounding the drumbeat of bad news. The media always plays on the investing public’s emotions which are fear and hope, causing them to do the wrong thing at the wrong time

“Not that the media’s at fault. The public demands to hear the why of what is going on which forces the media to give an answer that appeals to the public’s appetite and therefore sells advertising.

“My role is to help prevent you from getting caught up in what I view as a ‘tabloid mentality.’”

Learn to Trade Commodities and the Stock Market

One of the first things that we learn as speculators, and to a lesser extent it’s critical as investors, is that bullish news comes out of the highs, bearish news comes out of the lows. The discounting of mechanism of the market is the stock market. It anticipates what’s happening in the future, so news is simply looking in the rearview mirror. It’s already been factored into market price. That’s the situation as it stands right now. This should be a fascinating week to see whether the stock market does break its low for the move.

The crude oil has the bulls on their heels, both of these markets having established June 11 highs. This is very important. The other thing is that I’ve just produced a video that you can go to. If you’ve not seen it yet, it’s discussing the soybean complex; specifically where the soybeans and soybean meal are which also have a June 11th high and there is an imminent shorting opportunity in those markets.

Stock Market Trading – Current Positions

We are short the S&P, we’re short the crude oil, if all plays out according to plan, these are corrections, albeit severe corrections in what should be sell-offs into what would be higher bottoms. Our information will become most valuable as a publisher if these corrections unfold according to plan, because we fully expect the point at which the secondary low is in place to issue all-out buy signals for investment purposes both in commodities and stocks since they’re both going to be doing the same thing.

Also for speculative purposes in anticipation of second legs to the upside which should be very aggressive based upon the law of action and reaction. The fact that we’ve completed the second greatest bear market in history should lead to a very significant reaction with the market experiencing a very sizeable second leg to the upside. That’s the great promise that I hold out to you as a potential subscriber in looking to that potential buying opportunity. That’s what we have our sights on and we are in a position where we do want, as best we can, to encourage those that are intrigued by what we’re doing.

Stock Market and Commodity Market Analysis Using Historical Data

You’re not going to see this information anywhere else, we know that. It’s not available. Nobody does it. There are elements of it, sure, but not to the degree that we do it in terms of looking at history. We have a research engine, a computer software application that we use that compares the DNA of our market to the DNA of history. We are able to glean from history what the madness of crowds have done, what people are capable of in pushing markets to extremes of optimism and extremes of pessimism. It got a short prior to the bust cycle on July 22nd, 2008. We issued an all-out sell signal in commodities at this level right here.

That was in the crude oil, saying “This will be one of the greatest runaway declines in history,” and that is what has unfolded from here. This rally did not take us by surprise, and this turning point, if we’re correct, and the probabilities of that have gone up significantly as of Friday’s break to new lows. That correction is going to set the stage for a higher bottom, and then up we go in a bull market. So with that, I will let you go. Have a good day and profitable trading. May God bless you.

* Please comment on the video at the bottom of the page *

The probability our projection for severe corrections in the S&P 500 and August Crude Oil off the landmark June 11th highs is correct, increased dramatically with Thursday’s dramatic sell-offs.

This is as it should be based upon our 7 historic precedents since 1886.  However, while our current short positions could provide as much as an 8 to 1 risk/reward payoff, the real prize remains the same.

If this turns out to be a secondary correction into a higher bottom in an overall bull market, the low of this correction will provide what is historically, “the lowest risk point at which to make speculative and investment purchases” prior to the resumption of the bull markets.

In this new video I update you on how our market is tracking the “Closest Fit” precedents, the similarity to what took place at the “Great Depression” low, and the target zone for the completion of these projected declines.

Risk-Free Subscription Package Options

If you feel the research we provided in this video can help you make investment and trading decisions, take another couple minutes and subscribe to a one-month trial to one of our service packages.

Financial Forecasting Package – $47 per month (Market Coverage: S&P 500, Dow Jones, Bonds, Gold, Silver, Platinum, U.S. Dollar)

Commodity Forecasting Package – $67 per month (Market Coverage: Crude Oil, Energy Markets, CRB Index, Goldman Sachs, Soybeans, Corn, Wheat, Cotton, Sugar, Coffee)

Complete Forecasting Package (Financial & Commodity Markets) – $97 per month (Market Coverage: S&P 500, Dow Jones, Bonds, Gold, Silver, Platinum, U.S. Dollar, Crude Oil, Energy Markets, CRB Index, Goldman Sachs, Soybeans, Corn, Wheat, Cotton, Sugar, Coffee)

* Please comment on the video at the bottom of the page *

High Probability a Final Bear Market Low is in Place in Overall Commodity Prices

Point two: I believe there is a high probability of final bear market low is in place in overall commodity prices. The sheer violence of the waterfall decline followed by the trading range we have experienced since December argues for a final low; however, there are a couple of qualifiers here.

First, the damage that has been done, wealth destruction, has been so great there is no expectation nor historic precedent for commodity prices regaining the historic price levels achieved last year for a very long time to come.

Carrying Charge Premiums Diminish Wealth Building Opportunity

Secondly, the carrying charge premiums in the various markets, most notably in the crude oil and energy markets, are exorbitant and greatly diminish the probability of any great wealth-building bull market occurring for probably a very long time. In other words, we are projecting a bull market in overall commodities but one which needs to be approached as a trading market for the time being.

As you will see, the excessive carrying charge premiums are also in effect in the wheat, corn, oats, and cotton Just as a review, for those of you that perhaps don’t understand how the carrying charge premiums work, if we take the current contract in the crude oil, let’s just say the May contract, and we look at the contract in May of 2010 (one year hence), the 2010 contract trades between 20 and 30 percent above the current price. In other words, the current price on the nearest futures of the spot market is far beneath the future contract in May of 2010.

When you go out and you buy crude oil for delivery in 2010, you have to pay this huge premium. What we know historically, and we have done a huge amount of research on this, is that when there are large premiums in a market like that, it is a hindrance to making money. This is because, even if there is a bull market, that bull market in the cash market would have to advance 20 to 30 percent over the next year just for you to break even in the futures market.

It is like the market has a 27 percent interest rate. The equivalent of a credit card rate of interest in holding current contracts. This makes market participants dependent upon the market, the spot price, to move up more than what that premium is in order to make money, and that makes things very difficult for those on the long side.

Really, what it amounts to when we have conditions like this is it is better to be a trader in the market back and forth, and it goes back to also the option market; doing option writing can be the most effect means to make money in this environment.

Potential for a Final Low Based on 1920 and 1948 Historic Crash Precedents

I first want to show a table of all of the bear markets which have taken place across our board between 2008 and 2009. We see that most markets did bottom in 2008 and with a number following through into this year. Basically December, October, and December lows is when the final lows were established.

Now, the overall decline in these markets was 60 percent, but you can see that those in the purple were over 70 percent, all of the energy markets and also the copper markets. Anytime you see markets move really into the 60 percent and into 70 percent, we are looking at historic bull markets of the highest order.

The percentage retracement of the previous bull markets which started in 2001 averaged 78 percent. In a matter of  about five months, all of these markets retraced what took seven years of advances in price to culminate in the final top.

We have seen a waterfall You could call it a crash, call it whatever you want, the expletive that you would want to use for this market. It is of the highest order of deflation that we have ever seen in 200 years. In 1920 and also 1948 waterfall declines, or crashes occurred, but they culminated. In other words, those precedents established final bear market lows. It is based on those two precedents (1920 and 1948) that I believe that we have a final low in place.

The carrying charge premiums as of March 25th for 12 months out:

• Heating oil: 16 percent higher than the nearest futures
• Crude oil: 21 percent higher than the nearest futures
• Gasoline up 14 percent higher than the nearest futures
• Corn 14 percent higher than the nearest futures
• Oats a whopping 29 percent higher than the nearest futures
• Wheat 17 percent higher than the nearest futures
• Orange juice 19 percent higher than the nearest futures
• Cotton 20 percent higher than the nearest futures
• Lumber 19 percent higher than the nearest futures

Generally, this means that there is going to be basing action, or backing and filling all the way up. That does set our expectations. One thing that is interesting here is that you can see that in the soybean complex which we are holding long call option positions in, you can see that the premium is only six percent in the bean oil. Actually, it would be considered backwardation in the case of the soybeans. The distant contract is trading five percent lower. This would be considered normal premiums. Therefore, by participating in Soybeans, it means that we are buying value, and we don’t need to see the spot or the cash price advance like we would need to see in these other circumstances. That being said, that is a good market for us on this basis to be long in right now.

The Great Bear Markets in History

Crude oil declined 78 percent in five months and eight days. On a percentage basis that ranked as the seventh greatest out of a total of 20 that were in the elite category. But in terms of time, it ranked as number 20 in terms of length. It was far and away the shortest bear market in history; the second shortest being the cotton market during the 1920 to 1921 period.

On that basis, I had felt that we would probably see another leg down in the crude oil, obviously not the velocity that we have seen in our market that we had seen into the December low because we had come down 78 percent. I am not sure if that is gong to be the case. This ranks as the greatest decline in any commodity in terms of percentage move in the shortest period of time in history, and so it ranks at number one of twenty. This decline was rapid, culminating in dramatic fashion, and a bear market low is probably in place.

These are the historic bear markets following the great inflations in history. In 1920, we had this dramatic waterfall decline, but the final low in June of 1921 was a historic low, and the next bull market started, but the bull market was gradual in comparison to the decline.

1929-1932: Great Depression Deflationary Scenario in Commodity Prices

In the 1929 to 1932 period, all of the commodity advances were extremely modest, so this deflationary scenario in commodity prices during the Great Depression is one of a kind in terms of our historic database. The rallying power and consolidation in our market means we have basically divorced ourselves from the likelihood we are mimicking the minor rallies during the Great Depression.

What can we take away from that?

• We are not carrying the earmarks of the Great Depression at least in terms of overall commodity prices
• Our decline was much more rapid than occurred during the Great Depression
• We are experiencing consolidation that we didn’t experience during the Great Depression.

In other words,  overall commodity prices definitely have a unique signature that is more akin to the 1920 market than the Great Depression 1930′s market. That in and of itself would tell us that we are not a perfect parallel to the Great Depression. Hopefully that means that we are not going to see our economy disintegrate. That would be in favor of the possibility that we even have a low in place in the stock market, and that certainly is a possibility.

This is the 1949 market, but the waterfall decline in this market occurred and culminated, and then a major low was established, and you can see that the market moved higher here and actually exceeded the bull market top in 1948 but didn’t do so for about two years.

60 Year Cycle Almost Right on Schedule in Commodities

The Goldman Sachs chart (see video) shows projections of how these historic market movements occurred by overlaying them on a current chart to see how a mimicking move would play out.

This 60-year cycle I believe is the most important. It projected a final low in commodities in April of 1949, and our low is February of 2009. That is within two months of this replicating the 60-year cycle 1949 low.

Crude oil bottomed in December, but overall commodities touched a new low in February. On that basis, it would say that we are going to start s long-term bull market in commodities, but it was very modest to begin with.

Great Commodity Bear Markets

In 1974 market spiked up.  Then, the market ultimately culminated in a final runaway advance in 1980. We did see a spike up, a sell off, a violent rally, and then a secondary decline, but this waterfall decline in 1974 did culminate in a historic low in 1975.

This was a very short-lived bear market. Following the historic high in 1980, we experienced the crash of precious metals into March of 1980, and then overall commodity prices advanced until September of 1980. That started a long-term bear market which actually didn’t culminate until the year 1998.

(See the video for a chart of the Goldman Sachs commodity index) The recent decline in the Goldman Sachs commodity index is the greatest wealth destruction decline in commodity prices in history in the shortest period of time.

Between July 2, 2008, and February 19th, we declined 66 percent in seven months and 17 days. Recently, we have seen an advance of about 25 percent to the upside. Lately we have had basically trading range action.

The problem is that if we have this modest leg up in commodities and markets like the crude oil are at a 20 percent premium and cotton are at a 20 percent premium in these distant contracts over the front, then that diminishes the potential return to the up side. We need to calculate that into the equation and say that we expect to see some of these markets make modest moves, at least in the futures contracts whereas the underlying cash will be more dramatic.

The four comparable markets, and we’ve shown this before, were the sugar in 1974, silver in 1980, cotton in 1864, and corn in 1864. Those four markets declined in excess of 71% in price. We are looking at what occurred after those lows were in place during those four markets to look at what potentially could be the DNA in our market and how our market could play out.

* Please comment on the video at the bottom of the page *

You can see that the silver, cotton, and corn all experienced very comparable rallies (the orange lines) from the standpoint of length of time from their lows to what were bear market rally highs. The red points mean a red light. That means they started the next leg down in an overall bear market. The declines which occurred after these target points all resulted in declines to new bear market lows beneath what would be the December 19th low at 32.40 basis the nearest futures.

We are in a bear market. This is a first leg down. These target points are the first bear market rallies after the first leg down, and all of these were followed by legs down in a continued bear market. We’ve never had a bull market on the order of crude oil in any commodity that’s been completed after a single leg to the downside. I cannot emphasize this enough. When you see this kind of velocity of deflation like in the crude oil, you don’t turn around on a dime. We had a seven-year bull market in the crude oil. Here we’ve had a five-month bear market leg down, and we’re not just going to finish the bear market in five months, and then off we go on another bull market that previously was seven years in the making.

It just has never happened historically, so we would have to literally rewrite 220 years of U.S. financial history. The probabilities are just that that’s highly unlikely. We are statisticians and look at history because that represents human nature and human nature in action. Yes, we’re going through some very difficult times financially, but believe me, the United States has been through some very critical things. We’ve been through the Civil War, we’ve been through World War I, we’ve been through the Great Depression, and we’ve been through World War II, so these are huge economic dislocations which have occurred and do occur throughout world history. We’re in the middle of one of those things right now.

All that to say that our markets are not confounding us, and they’re not a mystery as to what’s taking place because we have a great deal of history in what’s taken place. This is one of those things that we’re saying, “This is what’s happened after commodities declined on the order of what we’ve seen.”

If You’re Merely Worth Your Weight in Gold, You Could’ve Bought Platinum Instead and Gone on a DietSixteenth-century Spanish Conquistadors, who routinely discarded as a nuisance the puzzling silver-white nuggets they often found when panning for gold in New Granada (now Colombia), obviously never heard of Lonmin PLC. Shares in the British firm, one of the world’s largest platinum miners, leaped 25% in London trading on Friday, February 17, as the company revealed it has been in “very preliminary talks” that could result in its sale. Lonmin’s acquisition would represent merely the latest in a spate of mining industry takeovers spurred by soaring precious metals prices.

Over the last 6 months, thanks to a wave of consolidation and burgeoning physical and investment demand for their output, 4 of the 5 best-performing industry groups in an otherwise mostly restrained U.S. stock market are metals or mining related, according to Dow Jones & Co. And nowhere have the underlying fundamentals been stronger than in platinum, the only one of the 3 best-known precious metals to eclipse its 1980 price peak and burst to new all-time highs.

Supply and Demand

Anglo American PLC, a large, diversified miner that produces gold, platinum and diamonds, followed rivals Rio Tinto and BHP Billiton when it increased its capital-return program (to $1.5 billion, 50% more than promised last October) in late February. Mining businesses remain flush with cash as China continues consume a growing amount of natural resources in its push toward modernization. Anglo American CEO Tony Trahar declared, “I think China’s integral to the success of all commodities companies today.”

Purchases of platinum by Chinese auto manufacturers surged between 35 and 40 percent (from about 80,000 oz. to 110,000 oz.) in 2005, on strong growth in car production and more stringent vehicle emissions limits. Last year marked the sixth straight annual increase in platinum purchases for use in autocatalysts worldwide. In 1974, new air quality regulations in the U.S. ignited an explosion in the use of autocatalysts, which are coated with a solution of chemicals and platinum group metals to transform noxious vehicle exhaust into safe compounds. Now, more than 85% of vehicles sold globally are fitted with catalytic converters.

Industrial use of platinum grew a respectable 5% in 2005, but autocatalysts (46%) and jewelry (30%) still accounted for over three-quarters of total demand. Jewelry demand actually fell for the third consecutive year, by 6%, amid skyrocketing prices. Platinum’s relentless bull market caused jewelry consumers to scramble for cheaper alternatives. As a consequence, Johnson Matthey, the leading platinum distributor, projected a 70% jump in Chinese demand for the increasingly popular and more affordable platinum group metal palladium.

China remains the world’s biggest market for platinum jewelry, but its demand for autocatalysts still pales in relation to Europe, which accounted for fully half of the record 3.86 million oz. of platinum bought by automakers in 2005. European sales of diesel-powered light vehicles are booming and average diesel catalyst loadings increased to meet tighter emissions standards required last year under Euro IV. Autocatalysts convert 90% of hydrocarbons and carbon monoxide and 30%-40% of particulate matter found in diesel exhaust into carbon dioxide and water vapor. The continent’s auto manufacturers purchased greater than 15% more platinum last year than in 2004, as the market share of diesels in Western Europe approaches 50%.

Much of the price rise in precious metals in 2005, however, was attributable not to physical demand but to intense fund buying. Individual investors continued to pour cash into mutual funds specializing in the sector. The net non-commercial position in NYMEX platinum futures climbed from 130,000 oz. around the beginning of the year to almost 550,000 ounces in early October. At the same time, speculators amassed a net long position of some 650,000 oz. to 700,000 oz. on the TOCOM (Tokyo Commodities Exchange), while the metal’s price closed in on $1000 for the first time since 1980. You can now buy ETFs (Exchange-Traded Funds), like iShares Comex Gold Trust and StreetTracks Gold Shares that hold actual gold bullion, which has also hit a 25-year high. Investment demand was responsible for 26% of the record $53.7 billion in gold demand in 2005, vs. just 14% for jewelry consumption. At the end of January 2006, silver threatened to reach the $10 level for the first time since 1985 on optimism that Barclays Global Investors’ proposed silver ETF, iShares Silver Trust, might be moving closer to approval.

Rekindled inflation fears and the desire for a store of newfound wealth contribute to investor demand for precious metals in developing countries like China and India. China still has the lowest per-capita consumption of gold in the world, but the biggest Asian central banks hold a small proportion of total reserves in gold compared to their western counterparts, leaving them with ample room to add to holdings.

Plenty of central banks around the globe, however, control vast quantities of gold they might sell, and this potential source of supply continues to overhang the market. Also, a substantial majority of dollars devoted to metals exploration is spent looking for gold.

At least 18 small firms that emerged in South Africa in the past 12 months are vying to compete with behemoths like Anglo Platinum and Impala Platinum by seeking financing, though their projects won’t yield full production for another 5 years, if ever. Bringing a new mine on line can take years by the time you factor in the tasks of prospecting, obtaining legal clearance, building infrastructure, and frequently fighting opposition by environmentalists.

South Africa, where the metal was discovered in Transvaal Province in 1925, is the world’s largest platinum provider by far, having replaced Canada in that role since the 1950s. Russia was the main producer for an entire century ending with the conclusion of World War I, and still supplies most of the platinum mined outside South Africa, which contributed 78% of the total global supply of 6.59 million oz. in 2005, according to Johnson Matthey. With slower-than-expected growth in South African output, that figure still represented a shortfall when compared to 6.71 million oz. worth of overall demand, and probably helped buoy prices.

Counter-cyclical Tendencies

Given the length of the current bull market in stocks, which started in 2002, investors eyeing the exits or at least contemplating a defensive move toward increased diversification might want to consider a strategy that could offer protection in event of an economic or market downturn. In several bear markets throughout history, precious metals – and sometimes even the securities of the companies mining them – have demonstrated ability to weather inflationary storms or severe international financial crises.

In the last major cycle of inflation during the 1970s, gold stocks turned decisively higher in the months before the final stock market top on January 11, 1973, then they really took off. By the time the first bear market leg down in blue chip stocks bottomed on August 22, 1973, with the Dow Jones Industrials down 19%, gold stocks were ready for a breather. Amid a potent 16% snapback rally by the Dow lasting until its derailment by the Arab Oil Embargo on October 26, 1973, ASA Ltd., a closed-end investment fund concentrated in South African mining companies, dipped from $44 per share to $43.75. Venerable gold miner Homestake edged down from $42 to 41-7/8. After that, both stocks, along with the rest of the industry, resumed their meteoric rise into the following year. Homestake vaulted 330% from its 1973 low of 23 to a peak of 99 in January 1974. ASA similarly rose from the mid-20s to over $100 by the third quarter of 1974. Once the bull market in gold stocks gave way, though, Homestake nearly made a round trip, collapsing all the way back to 29 in the late summer of ’74. The metal itself, however, sustained its powerful uptrend throughout the worst stock market year since the Great Depression, rising from a low of $34.75/oz. (below its longtime fixed price of $35) as late as 1970, to an apex above $195 at the end of 1974, when President Ford signed an executive order allowing Americans to again hold gold in any form for the first time since FDR took away that right in 1933.

In the Depression years, gold and gold stocks also bucked the trend. President Roosevelt removed the nation from the gold standard after taking office in March 1933 and, after outlawing direct ownership of the metal, proceeded to ratchet its price upward from the old $20.67 to $35. Homestake, then the foremost gold producer, rose from as little as $145 to $373 a share in 1933 alone. By 1936, the stock reached $554, about 10 times its level a decade earlier.

Maturity of the Precious Metals Bull Markets

The ongoing bull market in stocks since 2002 may be no spring chicken, but what does that make the precious metals bull markets, which started in late 2001?

If gold can creep back up to another fresh post-1980 high, it would stamp the yellow metal’s February 2006 price decline as nothing more than an 8 th significant correction in a prolonged bull market. Before taking their latest detour, gold prices rose almost incessantly in a 6-week, 17% march skyward that began from under $500 an ounce in the days before Christmas and culminated in an April contract high of 579.50 on February 2. The biggest part of the move came on the heels of a year that saw gold advance 18%, silver up 30% and platinum higher by 13%. Despite its laggard behavior in 2005, platinum has already enjoyed its second-longest cyclical bull market, rising nearly 170% since establishing a climactic bear market low of $406/oz. on October 2, 2001.

That final low, interestingly, represented a 49.25% reduction in the metal’s price from an even $800 on April 25, 2000. Some of the most extraordinary precious metals bull markets have followed bearish interludes that cut prices roughly in half. In the gold market, both prices and supply rose in correct anticipation of legalized bullion buying in the U.S. before 1975. In a textbook example of “Buy on the rumor; sell on the news,” gold then plunged 47% in 20 months. A historic wave of inflation ensued, sweeping gold’s price from $104 at the end of August 1976 to $850 in January 1980. Platinum bottomed 6 months before gold, but staged an almost equally spectacular rally from $135/oz. to $1045 in March 1980. After all that frenzied buying, platinum imploded to beneath $240 an ounce by mid-1982, uncharacteristically trading cheaper than gold.

What to Make of the Recent Sharp Declines in Precious Metals’ Prices

Platinum and gold prices have since reestablished a more normal relationship. But although platinum easily bested its historic high by climbing to $1094 basis the nearest futures on February 3, while gold and silver came up far short of their 1980 tops, the precious metals subsequently fell almost in perfect unison. By around mid-February, platinum had dropped over 9% to under $1000, silver went from challenging resistance near the $10 level to testing support above $9, and gold was down only slightly less dramatically, by more than 7%. Metals prices recaptured much of the lost ground by Friday, February 24 with help from an attempted terrorist attack on a Saudi oil facility, only to retreat anew on Monday along with crude after an uneventful weekend.

Crude oil, like platinum, broke out to new all-time highs a couple of years ago, then sharply sold off. The setback merely served as a springboard on the way to $69.81 per barrel – a level 73% above the old peak and representing a 96% gain from its bottom following the initial breakout. Copper, too, launched a runaway advance after vaulting to fresh highs in the commodity inflation that arrived with the 21 st century. However, the current platinum bull market is much more mature than either energy or copper were when they first broke out.

Is the bull market in precious metals finally over, or have we just witnessed a correction? If this is only a correction, how long will it last? Could the halving of platinum prices in the last bear market lead to a historic advance of the kind seen in 1976-80, or will it fizzle like so many lesser bull markets have in the succeeding generation? What does the attainment of new all-time highs by platinum portend, when gold and silver remain well off their highs? Can precious metals extend their winning streak without the impetus of higher prices for gasoline and crude, which topped last summer on damage inflicted by Hurricane Katrina?

We recently asked all of the above questions – and carefully provided answers based on 200 years of market data and the timeless investment precepts of W.D. Gann – in a precious metals Special Report and a special 2-part series of High Content Reports on platinum. Both can be yours while there’s still time to act by checking out our Complete Forecasting Service.

About the Author:

James Flanagan is the president and founder of Gann Global Financial. In 1978, while majoring in economics at Claremont McKenna College, he acquired his first book written by W.D. Gann, “How to Make Profits Trading in Commodities.” This set in motion his passion to validate the claims of this early pioneer of market psychology and technical analysis. In April 1990, he launched his first newsletter Past Present Futures which has been in continuous publication since that time. James Flanagan oversees all of the research and research development at gannglobal.com.