A Possible Explanation for Commodities Sell off

I wanted to make a quick intra-day post for readers who might be scratching their head regarding the sell off in commodities. 

I've been tracking this wave count at the monthly chart level and as of Friday's close, the index closed right at resistance. I have not had an opportunity to label the subdivisions of the rise from w.1 circle low but given the across the board decline in commodities a closer look is warranted. 

Best of Trading

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Fair Disclosure Notice: I do not have a position in any of the aforementioned futures markets or securities related to this article.     

You Decide The Fate of the Markets

Richard Russell stated in his newsletter, “I believe that the bear signal is telling us that Greece will default, to be followed by Spain, and the whole Eurozone may then fall apart.I consider the April-May action to be a continuation of a primary bear market that started on October 9, 2007, with the Dow at 14,164.53.  We are now dealing with the latter part of the primary bear market that began in 2007.”

While I don't subscribe to the newsletter, I did find myself in agreement with the quote. Everybody that follows me knows that I'm a long term bear and my view hasn't changed. It's lonely taking a contrarian view, especially with thinly traded markets and the manipulation of markets by the FED. Does it concern me that the FED may never stop printing and my shorts may get blown out? Certainly, but surely most readers would agree that the results of massive stimulus around the world hasn't really solved most macro problems. While QE1 and QE2 and Operation Twist has been supportive to US markets... each  has failed to push the broader market to new highs. Europe is in full crisis mode that threatens to take down global markets like dominos. China exports the majority of their goods to Europe. Australia is highly dependent on China for material purchase. Pundits say the  US is isolated from the Euro contagion. I ask how, since industrial multinational earnings will surely miss.

I wanted to briefly share what I'm looking at. Just charts... not allot of detailed commentary..... for you to evaluate. Enjoy

DOW

Dow upper resistance trendline holding yet I'm watching for the possibility that the same fractal pattern as shown in the shaded box may play out leading to another major advance. 

CRB Index

Working cycle w. III with much further downside risk. If equities experience a similar fate as last summer, commodities should continue their decline (See US Dollar, all in one chart.)

US Dollar

The Dollar has been building a base that supports the overall decline of commodities.

S&P vs CRB (All In One)

Notice commodities declined after each equity peak. However, as the the wave count of the CRB chart (above) indicates, a major top is in and explains why commodities continue their decline while equities were able to make a modest recovery highs.

Baltic Dry Index

VIX

The VIX is making a rounded bottom and I expect allot of volatility as price works up the lower right side of the arc. The H&S pattern is only the beginning. This view would be consistent with a more serious decline in equities. 

EUROPE

Chart of The Day: $AUD-USD

At the monthly chart level, the $AUD-USD appears to have completed Grand Supercycle w.IV where the internal structure breaks down in a w.(c) = w.(a) at 1.1086 relationship. A loss of .9705 would confirm that the top is in, clearing the way for a massive impulsive move to the downside.

This view aligns commodity currencies, like the Aussie Dollar,  to the recent strength in the USD (not shown) and the most recent weakness in the CRB Index.

Australia is a large exporter of gold, copper and wheat  and there is a high degree of correlation between the AUD and these markets. With the wave count calling for a decline in the currency against the USD, one would expect that the price of correlated markets to also decline. Needless to say, each of the corresponding commodity charts are bearish.