This analysis will cover the CRB Continuous Commodity Index, the US Dollar index and one of the main commodity currencies, the Australian dollar.
We'll begin with the CRB Continuous Commodity Index which comprises a mixture of components from sectors including energy, metals, soft commodities and agriculture.
Let's take a top down approach to the analysis beginning with the yearly chart.
CRB Yearly Chart
The lower indicators, being the Relative Strength Indicator (RSI), Stochastic and Moving Average Convergence Divergence (MACD), are all trending down and looking bearish. There is certainly nothing to get excited about from a bullish point of view.
The Parabolic Stop and Reverse (PSAR) indicator has a bearish bias after price busted the dots on the downside last year.
To my eye, there looks to be a massive 5 point broadening top in play with the 2008 high point 1, the 2008 low point 2 and the 2011 high point 3. I believe price is now on its way to a point 4 low. This may take another two to three years to play out. And once the point 4 low is in place I expect a massive inflationary move to new all time highs as price searches for a point 5 high.
So where is the point 4 low likely to be?
I have added Fibonacci retracement levels of the move up from the 1999 low at 182 to the 2011 high at 691. I expect a move down, at the minimum, to the 76.4% level at 302 and, at the maximum, to the 88.6% level at 240. I favour somewhere in between.
I have added a Fibonacci Fan from the 1999 low to 2011 high. Looking retroactively, there is some nice price symmetry with the 2008 and 2009 lows finding support at the 50% angle. Also, the 2012 top was at resistance from the 23.6% angle while the 2014 top was at resistance from the 38.2% angle. Price is now milling around the 61.8% angle and I expect some support to come in shortly that gives rise to a rally.
However, given the bearish indications already outlined, I am looking for the downtrend to eventually bottom out around the 88.6% level which looks to be between the 76.4% and 88.6% Fibonacci retracement levels already outlined.
Also, I have drawn a horizontal line denoting the 1984 high at 284. Old tops often provide support in the future and that is my expectation here. I often find price dips a bit below previous tops as a way to really test that support and I think price can nudge a bit below this level.
Let's move on to the monthly chart
CRB Monthly Chart
The lower indicators, the RSI, Stochastic and MACD, are all making new low readings which is a bearish sign. I like final lows to be accompanied by bullish divergences which requires and rally and then move to new lows while the indicators make less weak readings. The RSI and Stochastic indicator are in oversold territory so perhaps we can expect a bear rally shortly.
I have drawn two Andrew's Pitchforks - a bullish one with green lines and a bearish one with brown lines. In a bearish development, price broke down below the lower channel line of the bullish pitchfork in July 2014. Price is now trending down in the upper channel of the bearish pitchfork. I expect a rally shortly and considering it should be a bear rally only then perhaps price will be rejected at the upper channel line of the bearish pitchfork formation.
I have drawn a black uptrend line from the 2001 low and price has broken marginally below this line. I think this trend line can provide some temporary support that will see price rally imminently. This trend line is quite obvious and price rallying from here will lure in many bulls for the slaughter. However, it should be a bear rally only and once finished price should resume downwards and bust this support line convincingly on its next attempt - the fourth attempt.
I have added moving averages with time periods of 14 (purple), 50 (blue), 100 (red) and 200 (black). The long term bull trend appears in solid standing with the 100ma well above the 200ma. However, the 14ma has already crossed below the 50ma and looks to be threatening to cross below the 100ma. So there certainly appear to be some headwinds dead ahead. And perhaps the expected bear rally will be rejected at one of the overhead moving averages.
Once the coming bear rally is over I expect price to drop hard as it makes its way to the point 4 low of the 5 point broadening top formation. I have added the same Fibonacci retracement levels from the yearly analysis to provide a different perspective and perhaps the point 4 low will be at support given from the middle channel line of the bearish pitchfork. Let's see.
Let's now zoom in a bit closer with the weekly chart.
CRB Weekly Chart
The lower indicators, the RSI, Stochastic and MACD, seem to be starting to trend up with some bullish divergences showing. Perhaps one last low will see another bullish divergence added to the list.
The PSAR indicator still has a bearish bias so another lower low looks likely but the bearish bias, denoted by the dots above price, is long in the tooth and a rally looks set to take place shortly.
How high might we expect the bear rally to trade?
I have drawn a horizontal line to denote the previous major swing low set in June 2013. This level stands at 499 and should act as resistance. Price may turn down there but I suspect price can give that resistance a slightly more solid test by trading a bit higher and essentially making a false break high of the previous swing low. Does that make sense? Let's roll with it!
Also, I have added Fibonacci retracement levels of the move down from May 2014 high to recent low. Now keep in mind price may trade a bit lower but it should not overly affect this analysis. I think price can nudge the upside of the 61.8% level which stands at 513 while price rallying up to the 76.4% level at 535 is my next favoured scenario.
Once the rally high is in, it will be time for the bulls to say their prayers.
Now let's check out the longer term technicals of the US dollar beginning with the monthly chart.
US Dollar Monthly Chart
The RSI is extremely overbought and looks in need of a correction. This RSI reading is a new high so any move down is likely to be a short term pullback only and not the beginning of a bear trend. Once the correction is over price should move to new highs that are accompanied by less high RSI readings - a bearish divergence.
The MACD indicator is trending up in bullish style but the averages have diverged quite a lot so a correction in price would return them to normalcy.
The move up from the May 2014 low went parabolic and price often returns to these exact areas when correcting. I have drawn a green highlighted circle to denote where price went parabolic and I am looking for price make its pullback low somewhere around this level.
I have drawn a downtrend line connecting the June 2010 and June 213 highs. I am looking for price to find support at this trend line and perhaps trade a bit lower setting up a false break low.
I have added Fibonacci retracement levels of the move up from May 2014 low to January 2015 high. The 61.8% level at 81.64 is right around the level whereby price went parabolic and looms as an excellent target for the correction to end.
I have also added a Fibonacci Fan from the May 2011 low to July 2012 high. This has shown some nice symmetry with price so far as the May 2014 low was at support given from the 76.4% angle while the recent January high was at resistance given from the 38.2% angle. I am looking for the 76.4% angle to once again provide support for the coming correction.
My target for correction low can be seen in the yellow highlighted circle.
Also, I have added moving averages with time periods of 50 (blue) and 100 (red) and they have just recently made a bullish crossover. As often happens after this price comes back down and tests the support given by these averages.
Let's now look at the yearly chart.
US Dollar Yearly Chart
The Stochastic and MACD indicators are both trending up and looking bullish. Those predicting the bear trend resuming now might want to think that over. I don't see it.
I have added the PSAR indicator which pertains to the dots on the chart. Now there are two sets of dots on this chart as this is because I used two settings with this indicator - a tight setting and a loose setting.
We can see price has already busted the resistance from the tight setting and is now nearing resistance from the loose setting. Something I have noticed in these circumstances is price corrects without busting the loose setting resistance. However, the tight setting acts as an early warning system telling me the move down is only a correction and not the start of a bear trend. Once the correction is over price then goes back up and busts the resistance from the loose setting. The dots of the loose setting currently stand at 97.94.
I have drawn a downtrend channel which, while not currently obvious, will be so once the US Dollar index rally high is in place. I expect the rally high will top out at the top trend line. This trend line is north of 110.
In previous analysis I was looking for price to surge up to and be rejected at that trend line this year. However, upon further introspection, I believe expecting price to rally from the low 80's to above 110 in one year is pushing the realms of reality. This is probably me being a bit impatient and patience is one of my weaknesses. (Is there anyone involved in the markets than cannot improve on their own patience?!). Therefore, taking this weakness into consideration, I believe the move higher may take two to three years and possibly more.
I have added Fibonacci retracement levels of the move down from 2001 high to 2008 low. I believe price will rally to at least the 76.4% level at 109 and probably a little higher while I think the 88.6% level at 115 is a tad too far.
Finally, I believe this is all part of a downtrend of monumental proportions and have added some simple Elliott Wave annotations to illustrate that. I have labelled the 1992 low as the end of wave 1 while the 2001 high was the end of wave 2. The 2008 low was the end of minor wave 1 of major wave 3 while the coming rally high will be the end of minor wave 2 of major wave 3. After that, minor wave 3 of major wave 3 should see chaos reign throughout the world as the value of the US dollar is absolutely destroyed like we have never seen before.
Let's now turn our attention to the Australian dollar which is one of the world's major commodity currencies. We will just review the yearly chart to get a grip on the bigger picture.
AUDUSD Yearly Chart
The RSI is trending down and now in weak territory while the Stochastic indicator is also trending down with a bearish bias. Bears 2, bulls 0.
I have added two PSAR indicator settings which show price has already busted the tight setting support and is now zeroing in on the loose setting support which stands at 72.41c. I expect a significant rally before that support is taken out.
I have added Bollinger Bands which show price has moved down from the upper band and is now just below the middle band. I expect some price oscillation around this middle band before the downtrend extends itself. So a move back up above the middle band looks in order. Once the work is done I then expect a move to final lows down at the lower band.
And where is the final low likely to be?
I have added Fibonacci retracement levels of the move up from 2001 low at 47.78c to the 2011 high at $1.1079. Price is currently down around the 50% level and I expect some temporary support to come in here. Once the coming rally terminates I expect a move down to at least the 76.4% level which stands at 62.65c and most probably lower. I think price can challenge the 88.6% level at 54.96c but I think price will fall just short of that level.
I have drawn a horizontal line which denotes the 2008 low at 60.13c. I give some chance to price making a double bottom there however I favour the final low being a touch lower.
My favoured scenario means a massive 5 point broadening top is in play with the 2008 high point 1, the 2008 low point 2 and the 2011 high point 3. The current move down is part of a big downtrend that will end with a point 4 low. Then the following years should see a huge run up that hits all time record highs and eventually puts in a point 5 high.
I have also added a Fibonacci Fan from the 2001 low to 2008 high. The 2008 low was right at support given from the 76.4% angle and I expect the final low to be around support from the 88.6% angle. Perhaps a false break of that fan angle. Let's see.
If this analysis is correct, it means a big deflationary spiral is dead ahead that will see market participants wide-eyed with fear. However, there should be a significant rally before then which will allow many to get their houses in order.
And once this deflationary spiral has run its course, an inflationary bang of epic proportions should commence that will go down in history as one for the ages.