No Comments Written by Anthony Truong on March 23, 2008 – 7:15 pm

Very important week that just passed us by. Not due to market action in any major stock index, which was pretty choppy across the globe. But what was the most significant event possibly of this year were the falls across the board in the commodities. To recap:

Gold – Hit an all time high of $1032.85; hit a low for the week of $904.98; settled the week at a close of $910.70. From high to low, gold fell 12.4% in 4 days!

Silver – Hit a record high (but not an all time peak) of $21.265; hit a low for the week of $16.6875; closed the week at $16.7975. From high to low, silver fell 21.5% in 4 days!

US Light Crude (I’m using data on the May-08 contract) – hit an all time high of $110.345; hit a low for the week of $98.655; closed at $101.565. From high to low, crude fell 10.6% in 4 days!

I’m sure the falls in other commodities, especially those that have been “bubbling over” in recent months (i.e. wheat), were just as impressive; I am unable to comment as I do not have data on these contracts. However, the 3 mentioned above should be enough to shake you to your core. These are hefty falls in anyone’s books; however, to call the end of the bull and usher in the bear in commodities may not be quite as clear. Silver falling over 20% sure does sound bearish, but commodities are known to spike in all directions, especially towards the end of bull markets.

I will go out on a limb and say that I believe the bull market is over and the falls we’ve seen in commodities is further evidence of a bear market across all asset classes, including stocks. Of course, I’ve been speaking of a bear market in stocks for a while, but the reversal of these other assets adds fuel to the argument for an all out deflationary crash (you can’t have a deflation without money contraction in commodities as well as stocks and real estate). Evidence of the completion of the bull market in gold and silver is how they reacted when they encountered long term trend lines (especially silver’s, see daily chart).

Referring to the charts attached, crude looks like it’s setting up for a 3rd of a 3rd wave drop; I am anticipating a rally back into the $104-106 region before a fall that will dwarf that of the last 4 days.

Gold and silver both look they have completed 5 waves down of an initial impulse wave; if not, they should only have one more modest push lower before we get a sharp countertrend rally. How far will the rally go? I do not expect gold to exceed $1000 (or will at least find it significant resistance) and silver should not move back above $20.00. When we have a definite bottom in both markets, I will be looking for a sharp A-B-C rally that will end either at the 38.2%, 50% or 61.8% retracement of last week’s fall. It seems a bit non-committal to have 3 levels, but I would not place any short trades until a completed wave count is seen and this should occur at one of the cited price levels.

Also of note this week, the EURUSD hit an all time record high of 1.5904, and then completely reversed to hit a low for the week of 1.5396. That’s a drop of 500 pips in 4 days!!! This may be the first signs of life in the “dead” US dollar, as it prepares to rally to new heights.

As for stocks, the S&P500 looks poised for a fall; it’s either a 3rd of a 3rd, or a final 5th wave in an ending diagonal pattern. We’ll have to wait and see what the next week brings; if the highs of 19 March are taken out, the current count would be reevaluated to also include a potential 4th wave triangle, or other more confusing patterns. Let’s hope that the count resolves itself in a relatively simple manner.