Trying to predict short term direction is notoriously difficult, especially in the volatile metals market, but I'm going to take a stab at it today.
First off let me start with the big picture: For almost a year now I've been saying that the inflation that's been stored in the stock market for the last three years is eventually going to start leaking into the commodity markets. You can see in the chart below, that process has begun as smart money investors begin to move capital out of an overvalued and overextended stock market that is destined to top some time during the first half of this year, and into undervalued commodity markets where they are getting a better return on their investment.
These kinds of gains are going to draw more and more capital away from the stock market, at least until commodities form an intermediate top (probably around the first or second week of April). Yes this kind of explosive rally is going to have some kind of corrective move later this spring, but I don't think the rally is done just yet. I'm looking for an acceleration of the move in March to at least test the 2012 high at 320 on the CRB index before commodities enter a multiweek correction/consolidation phase in April and May.
I've also taken the liberty of extrapolating, on the chart, my expectations for the dollar index over the next month as it moves into an intermediate degree bottom.
If I'm right about the next week and a half, then I'm looking for the dollar to drop down and test the October low between now and March 19. As that level is a major support zone I think we will probably get a strong enough bounce at that point to produce a daily cycle low. However, considering that this intermediate cycle topped on week two I don't think this intermediate decline will be done until the dollar breaks below that October bottom, producing a failed intermediate cycle. So I'm going to look for a shortened daily cycle during the second half of March with a final intermediate bottom, probably on the April jobs report.
Make no mistake, currencies are what is driving the commodity markets, not demand, and I don't expect them to top until the dollar index finds its intermediate bottom.
While it's not absolutely necessary, it probably wouldn't hurt if the stock market were to drop down into a half cycle low over the next week and divert some buying pressure into the commodity markets as well. If Ukraine concerns were to flare up again this weekend, that could presumably tip stocks over into a mild corrective event for a few days. I'm not sure last Monday's one-day drop qualifies as a true and complete move into a half cycle correction. If that's the case, then next week would fit the timing band perfectly for this minor profit taking event that usually occurs around day 18-25 in the stock market daily cycle. (Monday will be day 21.)
