Next Target 22 Feb

Looking at the S&P500 on short term view with updated actual and forecast geomagnetism, this is what we see:

We saw a cycle inversion or very shallow pullback around 7/8 Feb, and now the next target is around 22 Feb for a potential medium term top, subject to seeing a set of overbought and overbullish indicators. Indicators have been able to cool a little in the last few sessions with some digestion of gains, suggesting we can push higher before reaching adequate extremes.

We can also see from the above chart that, based on forecasted geomagnetism, the trend is still up into mid-March. The threat to this is actual geomagnetism being greater than forecast, and at the time of writing an unforecasted geomagnetic storm is in progress. Below is a reminder of the historic seasonality of geomagnetism and its correlation with stock market seasonality, and it’s important to note that this is an average. In February 2012 so far we have not seen much of a pick up yet in geomagnetism, compared to seasonal history, but the threat is there that it begins to increase, putting pressure on the market, and as we move towards March, the threat becomes greater.

Therefore, I will be looking to see if pro-risk can push on into around 22 February whilst making a divergence with the model and hitting overbought/overbullish indicator readings, or whether we postpone an intermediate top until mid-March, if actual geomagnetism stays relatively low and we don’t hit screaming top signals in late Feb. If we do keep pushing on into mid-March, I note the first major Bradley turn of the year is 16th March, plus Greece’s debt payment deadline is 20 March, if that saga drags on unresolved. So let’s turn to macro fundamentals.

Credit markets continue to improve. The rise in Portugese CDSs in early 2012 has now been reversed, and PIIGS CDSs as a whole and Japanese CDSs remain contained. The US earnings beat rate has crept up to over 60% as the season has progressed, so fairly middling compared to previous seasons and not a particular reason to be bearish. ECRI US  leading indicators continue to accelerate upwards (whilst still negative) and the latest OECD leading indicators show a tick up for the OECD area as a whole:

Source: OECD

Other than the US, the countries contributing to the general uptick include Japan, Russia and India.

Economic Surprises for the major economies and for the US continue to oscillate around a historic topping area. Until we begin to see a downtrend, pro-risk sentiment should be sustained, but a downtrend is likely to be close, due to this being a mean reversion indicator (data starts to disappoint versus ratcheted up estimates).

Source: Bloomberg   

Here is a reminder of the market’s overall sideways action once Economic Surprises topped out and began to fall away gradually in 2009-10, following a similar surge up from an extreme low (that was a leading indicator for a market rally).

Recall that history suggests overall sideways action in the next 18 months for equities, with a slight upward bias, whilst commodities outperform (based on the last 3 secular commodities conclusions into their associated solar peaks).

Lastly, some analysts are pointing to the Vix as a reason to expect a market reversal, as it back at the level which has marked a low multiple times in the last 3 years. However, as the chart shows below, the Vix could move sideways whilst stocks push higher, for a period.

Source: Bloomberg

Not only that, but if we look further back to 2005-2007, the final part of the last cyclical stocks bull, the Vix oscillated in a lower range (10-15 rather than 15-20) than in the last couple of years, which at least gives the possibility that the Vix could drop beneath the apparent horizontal base shown above.

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20 thoughts on “Next Target 22 Feb

  1. Thanks a lot, John, only I, d like to know if it´s possible to see only the Daily Geomagnetism chart in this new web, without the lunar phase.

    From St. Sebastian, north Spain

    1. Hi Antonio, OK I have just added charts to Short Term Models showing geomagnetism on its own. Let me know if this is what you are after.

  2. In the other web it was easy to see just the Geomagnetism forecast. What you show today is Geomagnetism and lunar phace?

    Where in this new website to see de geomagnetism forecast.

    Thanks a lot again, John.

  3. Thanks, is it possible like this?, is very clear and geomagnetism in my modest opinion predicts futures convulsions:

  4. All my indicators of cycle are next to a top from march09 and also the sentiment is bullish, look at II, the new and the first; or AAII, ratio put/call, VIX, Blai Koncorde, dow is after Bovespa with a year and 4 months +-, remember DOW66-83, now in 76-78, EURUSD, NYSI, OEXA, BDI, minor cycle 4 month+- for a close floor since 3OCT11.

    In the end of 2012 or 1Q 2013 i see the next bottom, 8.500+- DOW.

    2013 Bullish, 0,618, al least of the decline from nowdays levels DOW.

    John, look the solar cycle from 1966-83, happened similar in 1980 than can occur in 2013-14.

    Regards from St. Sebastian, north Spain

    1. The Nas100, the leading index, has now cleared its old high by 5%. DeMark indidcators suggest a 5% pullback might be in order. So a pullback to retest what was resistance now support would make sense. A guess at this stage though – let’s see at what level the market tops – starting with seeing if today’s inverted daily hammer candle fulfils.

  5. If DOW drops, migth be 12.500 area, not more, and after 13.150-13.200, this is my best way bullish.If not, 1 year +- to the 8.500+-.

    It ´d be interesting the forecast for next weeks/ months of geomagnetism; the geo+lunar phace is pointing a near top, John?

    In which conditions would you revise your bullish scenario?

    I remember, you wrote some weeks ago, in jan12, you have an alternative scenario.

    Good night, John

    1. Roger just emailed about Apple – I hadn’t spotted it as I don’t trade individual stocks – but take a look at the chart – a parabolic rise with a big inverted hammer candle today – that looks very much like a top.

  6. Hi John –

    Just out of curiosity, how do you play your long commodities expectation? Equities / equity ETFs vs regional plays (emerging markets) vs underlying ETFs…

    Thanks,
    Eric

  7. One should test the alleged coincident effects (?) of geomagnetism and stock prices by performing a simple first-difference change correlation of perhaps the smoothed geomagnetism and the change rate of the SPX at an appropriate period. If the r sq. value is not in the range of at least 0.50-0.70, any perceived effects are likely just random artifacts and not statistically significant.

    Moreover, one could be more rigorous and perform spectral analysis to determine if there are recurring cyclical periodicities of geomagnetism and stock prices in a given 12-month period, for example, or over longer periods. Brian Berry and Heja Kim in the early 2000s demonstrated that there are 3-, 6-, 9-, and 18-year cycles for inflation-adjusted stock prices as well as real GDP per capita. Thus, one would expect to observe a similar cyclical pattern for geomagnetism. If there proves to be no recurring coincident periodicities or a sufficiently high first-difference correlation to stock prices, then the implied geomagnetic effects on stock prices very likely does not exist.

    Similar tests have been performed on the alleged correlation between seasonal or cyclical turns (up or down) for stock prices and the Bradley siderograph, and all of the tests of which I am aware to date show no statistically significant correlation whatsoever. There is likely to be self-reinforcing herding effect from self-selection bias of observers/participants during select periods after which the inferred effects eventually break down and resume randomness and are de-emphasized or ignored thereafter.

    I suspect that geomagnetism is another such artifact of self-suggestion, self-selection, and herding; but the tests are easy enough to design and perform to determine one way or the other.

    1. Thanks for your couple of detailed posts.

      I will in due course be writing my own paper on geomagnetism. It’s the only way to really convince of its merits as a trading discpline. And if that deeper analysis casts doubt on it, then so be it. I am not here to promote solar phenomena in trading no matter what. But rather, as a self-taught trader with an open mind, this is where the evidence has gradually led me – namely that solar phenomena as a whole have much greater importance on the economy and financial markets than currently accepted. Based on my research to date, geomagnetism is no Holy Grail to the trader, but it is a useful and predictive tool. I believe my models demonstrate that adequately, but will go deeper when time permits.

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