Cycles expert describes this critical juncture for commodities and equities markets: Tim Wood

Tim Wood of Cycles News & Views is featured this week at the Financial Sense audio, link featured at http://www.financialsense.com/ (top of page there). And he's posted a public commentary there, A Brief Review and Update on Commodities (April 17). Tim's website is included in the "other sites of interest" listed at the right side of the page here, because I find his cycles work very thorough and informative. His work includes equities and other markets (bonds, dollar, oil, gasoline) and he uses not just cycles but also Dow Theory and Kondratieff waves. His commentary yesterday focuses on commodities but does also address equities. Here, we've certainly noted that as the equities rally turned choppy, gold moved to its current pullback mode, and oil also halted its rally and has been moving sideways. So even if you only follow equities markets, these other markets can clue you in to what's going on. After all, the concepts of inflation and deflation are very important and will show up in commodities as well as bonds and equities. Here are some quotes from Tim's commentary:

As we should all remember, in early 2008, commodities were on fire as they moved up into their parabolic tops. Of late we have seen a rebound, and based on the e-mails that I’ve been receiving, the crowd is once again turning bullish. Personally, my analysis tells me that commodities are now entering another very critical juncture and how they handle this test will set the stage for months to come.

In review, the CRB topped on July 3, 2008 with an intra-day high at 473.97. By December 5, 2008 the CRB had dropped 56 percent to 208.58 and the final low for the move occurred on February 24, 2009 at 200.16 for a total decline of 57.76 percent. On July 11, 2008 crude oil hit an all time high at 147.27 and the following week my intermediate-term Cycle Turn Indicator triggered an intermediate-term sell signal that remained intact until this past January. Crude oil finally found a bottom on January 20, 2009 at 32.70 for a total decline of 77.80 percent. Gasoline also peaked on July 11, 2008 at 3.63 and a bottom was not made until December 24, 2008 at .785 for a total decline of 78.37 percent. The top in gold came in March 2008 at 1,033 and with a bottom in October 2008 at 681 for a total decline of 34 percent. The XAU also made its top in March 2008 at 209.27 with a minor bottom in May and a secondary high in July. The next low was then reached on October 24, 2008 at 63.52 for a total decline of 69.65 percent. [charts in full article]

For the record, yes, these tops and declines that followed were called using cyclical analysis, statistical analysis and my intermediate-term Cycle Turn Indicator. Also, each of these recent lows was identified in the same manner. ...

However, we have now moved to a very important cyclical hurdle or juncture for these markets. The key for the longer-term outlook of these markets is how well they handle this hurdle. At this time we do not have enough evidence to know for sure if the most recent weakness will turn out to be a buying opportunity or if it is marking the beginning of the end for the recent intermediate-term advance. I can tell you this, caution is advised at this juncture and we should have an answer in the coming few weeks. The key, from my perspective, will be the behavior of the intermediate-term Cycle Turn Indicator and the statistics. As long as the CTI and the statistics are positive, then the intermediate-term move up must still be considered to be intact and higher prices will remain possible. But any further weakness that also turns the intermediate-term Cycle Turn Indicator negative and/or that causes the statistics on the commodity complex to unfold in a negative light should be followed by yet more weakness. In addition to being at an important cyclical juncture, the other danger I see here is the bullish sentiment, and when taken together I do not like the mix. Caution is advised as I await the ultimate confirmation of the indicators.

As for equities, the Dow theory primary trend change that was first confirmed on November 21, 2007 still remains intact. From a Dow theory perspective, the recent bounce must still be considered a counter-trend bounce. The most current Dow theory chart can be found below [see chart in article]. The key to this bounce is also the intermediate-term Cycle Turn Indicator and as long as it remains positive, higher prices will remain possible. But once this indicator turns down, the risk will then return to the downside.

It shouldn't really be surprising that, just as we see this time and price area as being an important one from which equities can make an important turn for the short-term and possibly longer time frame - this can also be a significant cycle time for commodities. Perhaps some of the same issues raised by models like the Armstrong Economic Confidence Model may also resonate in commodities, since they move in step with inflationary and deflationary cycles, sensitive to business downturns and upticks.

This is one of the reasons why I included gold and the dollar with my other swing trading charts, along with the Dow Transports and various sentiment and technical indicator charts, in my charts review post earlier this morning here. I won't be able to post many charts especially early this week due to my upcoming travel schedule the next several days. So I hope my readers will get some of these clues and keep an eye not only on the VIX and VXO (and VXN) volatility indices, but also on these other bonds and commodities markets to discern movements that can also illuminate the importance of what's happening with equities markets this upcoming week.