Elliott Wave Count on the CRB Commodity Index

Nov 30, 2008: 11:52 AM CST

Commodities across the board have taken massive falls throughout 2008.  Let’s take a look at a possible Elliott Wave Analysis for the monthly and daily $CRB Commodity Index to see if we can place these moves within a broader structure.

CRB Index Monthly

:

This structure takes price from the 1999 lows as the start of Wave 1 all the way to the 2008 highs as the termination of the final Wave 5.

Wave 1 terminated into resistance at the 200 month moving average before retracing almost all of the previous Wave 1 impulse on a closing basis which was startling at the time – second waves can be violent and catch many people off guard.  It’s immensely difficult to detect them in real time.  Elliott is far easier to apply in real time during or after a third wave materializes.

The Third Wave here was a particularly prolonged impulse, which is fitting with the teachings of Prechter and Elliott that it is often the most complex, largest (longest) wave of the 5-wave impulse.

The third wave sub-divided nicely into a fractal of the larger impulse, only that the fifth (fractal) wave was quite extended, which I have labeled in red as a fractal impulse.  What’s interesting is that the “fifth of the fifth” or the final fifth wave in the fractal wave itself subdivided, which I could have labeled if space were not an issue.  Take a look at that for yourselves – quite interesting.

Wave Four corrected just beyond the 38.2% Fibonacci retracement (intra-month) of the previous third wave, and found support twice via the rising 50 month EMA.  Price formed a quick “ABC” correction which led to the final Fifth Wave advance.

Though the Fifth Wave was not the largest, it was the sharpest, advancing its gains rather quickly and arguably violently as price surged from late-2007 lows to mid-2008 highs, bringing renewed fears of inflation as oil and other commodity prices soared to record levels.  At present, those realities and fears seem to be a distant memory, as we currently are discussing deflation, where the prices are falling too rapidly.  Alas, but that is another story.

If this wave count is correct, then we are in a particularly violent corrective “A” Wave down which should at some point find support and then begin a “B” Wave corrective move back up – I’ll set targets later as that materializes and we confirm the bottom of the first corrective wave.

Speaking of that wave, let’s look inside it, on the daily chart.

CRB Index Daily:

I would be appreciative if more experienced Elliotticians could provide their views on their counts, or on this count, but what I am showing (following Prechter and Elliott guidelines as best I can) is that we have concluded a third wave down possibly and are looking for a corrective fourth wave to materialize.

This is similar in structure to the analysis and question I recently posed on the “Elliott Wave Analysis on the Euro” particularly on the Daily Chart where I asked “Are we about to experience a 4th wave up or have we already experienced a five-wave complete impulse move down?”  The comment section gave some great responses from experienced readers – feel free to join as well.

Nevertheless, unless there was an extended or complex wave that I missed, the current wave structure makes the most sense to me until proven otherwise.

If that is the case, then we’ve experienced Wave 1 down which was complete with a full Elliott 5-wave fractal (labeled) with wave 2 also being complete, having been comprised of an “ABC” Correction.

Wave 3 has been particularly violent – we should expect nothing less – and itself has potentially terminated into a final fifth wave (fractal waves labeled) on a multi-swing positive momentum divergence.

If this is correct, then we could expect some sort of “ABC” Corrective wave pattern back up, perhaps to the 300 level or so, but we could reasonably expect price to break above the 20 and perhaps 50 day EMAs in this potential corrective pattern.  The positive momentum divergence should send warning signs at least to aggressive short-sellers.

Feel free to weigh in with your thoughts or alternate interpretations.  The more patterns we see and discuss, (and practice) the better we’ll be at interpreting potential wave counts and possibilities ahead which helps in trade selection as well as risk-management.

Corey Rosenbloom
Afraid to Trade.com
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8 Comments

8 Responses to “Elliott Wave Count on the CRB Commodity Index”

  1. Patriot Says:

    Corey – many analyst are pointing to the positive MACD divergence however let us not forget there was similar Pos div in late July to early August (as seen on your chart above with minor 3 down to minor 5 waves)which resulted in further price declines…currently I see a classic AB=CD pattern developing almost identical to the AB=CD pattern from mid-August to October (fractal?) which is bearish.

  2. J. Livermore Says:

    Corey, my count on the CRB daily is a 5-wave A (not a 1) to 380, a 3-wave B (not a 2) back up to 400 — then a 5-wave C down to 235.

    The 5-waves in the C-leg suggest that the move downward has ended. That’s the big difference in the counts.

  3. Corey Rosenbloom Says:

    Patriot,

    Indeed – to me a positive divergence is a piece of the puzzle and not the puzzle itself. It’s only an indicator or what could be brewing under the surface – price action must confirm it with a reversal and then a EMA break. The same structure could indeed play out the same way here, but it’s worth noting the possibility of a change, however temporary.

    You’re right too – this whole chart is a lesson in measured moves or bear-style flag examples. Could indeed be seeing one play out again but that lengthy divergence gives me pause.

  4. Corey Rosenbloom Says:

    J.

    I could see that count too, with A being a fractal 5; B being an ABC; C being also a fractal 5 which gives us a classic Zig-Zag.

    Still, looks like – at least on the monthly chart – a counter-wave up is yet to come soon.

  5. Andrew Stanton Says:

    I’d have to give the edge to Corey’s count since the second count features an awfully small B wave that doesn’t even show up on its relevant time frame: the weekly chart. If wave 4 is beginning then expect a complex pattern to contrast with the simple wave 2 that most likely makes it up to the level of the fourth wave of lesser degree. One other thing, since both charts cover such a large price range they would be better viewed on a semi-log scale.

  6. BillyD Says:

    Corey;

    I am not an Elliot waver but it looks like an inverse H & S 340 – 360 with a break of 360 leading to a move to 380.

    Billy

  7. William Davies Says:

    I would be very interested to see if you could use the Elliott Wave Theory analysis to see where the Baltic Dry Index is likely to move going forward. As this index on dry shipping cargo rates is a lead indicator it would be great to see the relationship between this and any commodity index you are following, whether it is the CRB or RICI.

  8. Corey Rosenbloom Says:

    William,

    I ran the Elliott on the BDI for you in today’s post.
    Thank you for the inspiration for the post.