Tony Caldaro | May 19, 2013 07:34AM ET
We have written about the commodity market over the years, and have been generally bearish for quite some time. The typical commodity bull market lasts about 13 years, followed by about a 21 year bear market. This is the 34-year cycle. Commodity bull markets usually begin near the beginning of stock market Secular inflation/deflation cycles. Then end just before these cycles end. During the stock market Secular growth cycles commodities remain in a longer term bear market.
Some historical examples:
1929-1949 Secular deflationary cycle … commodity bull market 1933-1946.
1966-1982 Secular inflationary cycle … commodity bull market 1968-1980.
2000-2016? Secular deflationary cycle … commodity bull market 1999-2011.
In years past, the CRB index was used to determine the overall trend of commodities. In recent years this has been replaced by the world consumption oriented GTX index. Notice the bull market in the GTX started in 1999, but ended in 2008. Other sectors within this index--there are five--started/ended at different times. The barometer we use to determine the beginning/end of the commodity bull/bear markets is Gold.
If we dissect the 1980 bear market in Gold, we observe a two year decline of about $575 to form Primary A. Then a one year $225 rally for Primary B. This is followed by another two year decline. But this time it is only $240, to a slightly lower low, to form Primary C.
Keep in mind, commodities in general are quite volatile. Gold, in fact, has started to trade like Crude since it entered a bear market. One, two, three percent swings are possible in a single day.
This comparison would suggest Nat Gas is now in an X wave rally, which starts the trading range of its longer term bear market. Therefore, just under $2.00 would be the base price for decades to come. This chart also suggests Nat Gas will likely be the first commodity to end its bear market. Possibly as much as 6 to 8 years ahead of the other commodities. With lots of supply coming on line in the next few years. An earlier bottom in Nat Gas would fit quite nicely with the demand/economic growth curve of the expected stock market Cycle wave [3]: approximately 2016-2034. The pieces, if we dare look that far out, seem to fit.
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