Solar Peak Secular Asset Conclusion

Here is a table showing just the last 3 secular commodities bulls and associated solar maximums. I have created a forecast along the top row for the current cycle, based on them.

I found it help clarify what could come to pass. Gold could potentially not peak until late 2013. But peak inflation should occur fairly close to the solar peak, suggesting oil/food, at least, should surge ahead of that, and gold should be performing well by association. Real equities valuations could potentially not bottom for another few years, if a recession begins later or a double recession occurs. It doesn’t alter my strategy or positions. It perhaps implies a little more patience is required in seeing it all play out.

The chart below shows the current Dow chart overlaid on the 1980-82 Dow chart. 1980 was the US election year like now, and it was also a parallel secular commodities and solar maximum. A similar unfolding would see equities track sideways to upwards into the elections later this year, before down into their final low in 2014. I would note though that the solar maximum takes place after the elections this time, not before like back then.

Source: Charles Githler (Hat tip Juan)

Turning to the current markets, Tiho did another great summary yesterday at his Shortsideoflong blog, and my thinking is very much aligned with that. I will just add that I continue to expect a bit more pro-risk upside into this weekend’s new moon, so that means today, but I expect to keep my bounce longs as the upside hasn’t been decisive. As my equities longs are fairly small, I would happily add lower if this turned out to be an extended B wave in an ABC down. Sunspots continue to increase. Economic Surprises continue to flounder. Asia continues to outperform currently.

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20 thoughts on “Solar Peak Secular Asset Conclusion

  1. Hi John, the analogy of the last half-year’s behavior of gold with that in late 1979 (discussed here few weeks ago with Mark) fully corresponds with your today’s post. It suggests that we should see the final bottom in gold maybe the next week (maybe even under 1,500), then trading in range cca 1,600-1,800 until the end of November 2012, then spike to 1,900 region in December 2012 (after pres.elections – that makes sense), and then the final breakout above 2011 highs in late February 2013. The peak in gold should occur at the end of 2013 or at the beginning of 2014 around 3,500 if this analogy holds. This is pretty consistent with your today’s call of the early 2014’s bottom in DJIA because it brings the final bottom in the DGR to level around 3 which is reasonable I think.

  2. I have said before that I think 2011 was probably the top for commodities. It’s based on Gann’s 60 year cycle Master Time Factor, long term valuations, market behavior, and contrarian sentiment,but like the amalgamator, I’m always trying to reconcile everything. So why am I so contra to this solar cycle stuff (new to me). Well, looking at the sunspot chart, it looks like it has already peaked to me. So I googled sunspot charts. I ran across that cycle 24 had been predicted to peak in 2010-11. Also, the last peak was in 2000 ie 2000 plus 11 year sunspot cycle = 2011. Gold, silver, platinum, palladium, and copper have broken below their 200 day moving avg .All except gold have now rallied back to their declining 200 ma and fallen away – gold’s is still rising. That by definition is a sign of a trend change from bullish to bearish and puts these markets in a position to fall significantly.

    1. Kent, I have a pretty basic question for you.

      Why would we have a top in commodities when there are shortages developing in energy (apart from Nat Gas), in agriculture and in metals? Do prices go down when demand exceeds supply or do they go up?

      Do you really think Oi lis going up because of Iran or Libya. Of course not, those are short term events that create emotion price swings. Long term trend of Oil is up because of shortages developing. Even when Oil crashed to $30 in the short term during 08 panic, it recovered back to $120. It constantly keeps going higher… why?

      The market is discounting future economic conditions and demand / supply outlook. In about 20 years, we will burn up all global Oil reverses according to the IEA and there will be no above group Oil left at any price. We haven’t found a major Oil elephant field for over 25 years.

      Until supply overwhelms demand, the price will constant average higher and higher levels. In 2008, Oil record was $147, but in 2011, Oil averaged a much higher price than in 2008. In 2011 Oil’s annual average was at a record. I am pretty sure it will just keep going up higher and higher, until we discover some major Oil fields.

      I do not know of any major metal mines that have been opened in the last 10 years. I’m saying major, because the ones that have been opened are just neutralising the supply for the ones that are about to be closed in the next couple of years. It takes 10 years to open up large mine and 2008 crisis made sure a lot of those plans have been scaled back or even cancelled.

      If you study history, you can look at Gann cycles and skip the whole demand & supply non sense, as many call it. Fair enough, each investor has their own style.

      But, just consider for one moment that demand and supply is what dictates prices in the capitalism, so you can also go back into history and study secular bull markets in commodities. Every single bull market ended when supply overwhelmed demand and than speculation fever or bubble mania occurs.

      According to the history and research I have done, no commodity bull market ended prior to supplies over wheeling demand. I have studied the CRB Books and all revenant sources going back to 1700s.

      1. What you say may be true, and I trade these instruments all of the time, but the paper markets are overwhelming the physical markets. There is typically 10 to 1 paper longs to physical being ready for delivery. Any disruption to the paper speculation brings oil’s price down 15-50%. Copper in the warehouses in China overwhelm the annual demand for the metal. It is being hoarded. Again, a margin call on copper brings all of that supply to the market.

        The Obama administration is under great political pressure to bring down energy prices, an intervention in these markets by government through position limits, etc will crush the longs.

        A flush in commodity prices is not out of the realm of possibilities.

      2. A great mystery to me was that commodity prices went down in real terms all during the industrial revolution. Obviously, population and demand sky rocketed. However, new discoveries and industrial production of commodities overwhelmed demand. That process occurred within a cyclic process. Increased demand brought higher prices which brought on new supplies and conservation. This whole supply/demand process historically has worked out to a ten or twelve year period of higher prices when demand exceeds supply. Then, an approximately 20 year bear market follows as conservation and new supplies exceed demand. The top in prices occur when demand exceed supplies by a wide margin like last year.. The bottom occurs when supply exceeds demand by a wide margin like around 2000. The bottom in oil back around $10 in 2000 was signaled when the Economist mag cover story read the World awash in Oil because oil was in excess supply. So I think between conservation measures and increased mining supply will overwhelm demand. Silver is a good example. Industrial demand for silver has been dropping for over a decade. Investment/speculative demand has risen dramatically. So, all the new mining will increase supply and recent high prices will increase conservation. So if investment demand takes up all the increasing supply and reduced usage, you will be right.
        Actually, I believe tops actually occur when demand greatly exceeds supply, a short while before supply exceeds demand.

  3. Monday morning brief summary. Time for a C leg down in equities over this next couple of weeks, following a B leg up into this last weekend’s new moon? Possibly, but there are competing factors. Sunspots are up higher still, geomagnetism contained – that’s bullish. Earnings reports in the US showing an impressive 72% beat rate so far, also bullish. Note Apple reports after the bell tomorrow, which should be a key mover. The FOMC is Wednesday and is another likely trigger for the dollar index triangle to break one way or the other, with opposing implications for the markets. Spain debt remains at the highs and capable of panicking the markets – bearish. Economic Surprises are flirting with moving negative, but show potential signs of stabilisation in the US. China PMI this morning still below 50 (contraction) but in an uptrend.

    No trades. Waiting for this to play out. Gold and silver show positive divergences and miners are ripe for an uptrend, but if the dollar breaks upwards then may have to wait longer for metals and miners to get started. If equities do make a C wave down, I’d be looking to buy lower, on oversold signals potentially around the full moon in 2 weeks time.

  4. Re the dollar: I’m not a currency expert but it is patently obvious that the Americans want a weak dollar. Historically, the dollar performs relatively weakly in this period may/june/july at this stage in my cycle analysis.ie. if the dollar is to rise it may not do yet.

    I will take plenty of notice of the sentiment readings out on Wed. I accept Tiho’s point about sentiment but the ones I see don’t suggest they are at extremes. In fact the case for being long PMs and short Dollar probably deteriorated slightly last week based purely on sentiment. My modelled Gold price is still rising so I will add to my position on weakness.

    Contiuing my previous posts on PM manais: As I ‘ve already posted the most likely years for a mania stage to occur are 2011 or 2015. 2011 did have a mini mania but for the moment I don’t think that it was THE MANIA.

    A critical issue is “who wins the US election?” Many bubbles are formed,not in yr 3, but yr 7.
    WHY?
    Because administrations cover over cracks. There is always one big crack which comes back to bite them.
    Reagan…yr 7…
    Clinton….yr 7
    Bush…yr 7

    They all had “an issue” which was ignored and created an unsustainable bubble.
    It is my belief that if OBama is re-elected – which looks likely, his achilles heal will be US debt. The bubble that is formed in his second term will be the one which we are looking for.

    Remember, in the light of last years price action in the PMs a period of lower returns could mean an bell – curve 1500 -1900. Or even 1500-2100.

    I reassert my opinion that the most likely super performance will take place from july 2013 – Jan 2015. It could be that the price in July 2013 is anywhere in the range stated above.

    1. I agree that 2011 and 2015 are the most likely PM mania years. This would appear to conflict with NASA’s (and some others) solar peak prediction for March 2013, but I think they will have to revise their prediction as cycle 24 continues to develop in an unexpected way…

      In October 2010 David Archibald predicted the solar peak in 2015, and also that the sun’s north-south magnetic polarilty (the dipole) would not reverse at the forthcoming peak: http://wattsupwiththat.com/2010/10/06/archibald-on-dr-hathaway%E2%80%99s-most-recent-solar-cycle-24-prediction/ . The latter was a somewhat outrageous prediction, conflicting with the commonly-held belief that the dipole “always” reverses at each solar peak: http://science.nasa.gov/science-news/science-at-nasa/2001/ast15feb_1/

      But it increasingly looks like Archibald was correct, because the sun’s southern magnetic field has been backing away from a dipole reversal since March 2011: http://wso.stanford.edu/Polar.html This formed the minature solar peak in 2011, coinciding with the commodities high.

      So have we seen the ultimate solar peak during 2011, or is there a higher one to come in 2013 or 2015? Here’s a graph based on a model by M A Vukcevic, which he created in 2003 by taking into account positions of the planets with the largest magnetic fields (it is widely accepted that they affect the sun’s magnetic fields). http://daedalearth.files.wordpress.com/2011/03/hcs-vs-barycentre-a.png

      The “Compsite Data” in the graph are measurements of the sun’s northern and southern magnetic fields taken by Stanford University’s Wilcox Solar Observatory (see the link above). The correlation between the measured data and Vukcevic’s model is striking. But look at what it predicts for the period 2011 to 2015 – a stop/start bipole reversal possibly creating several apparent solar peaks, but pointing to an eventual real solar peak around early 2015.

      There is a significant and growing possibility that commodities could form further interim highs over the next couple of years, with the real mania occuring later (2015) after most have sold out…

      1. Thanks both, you got me digging. Nasa and SIDC are still going for 2013. David Archibald has some more recent posts on WUWT in which he seems to have backed down from 2015 but does suggest it could be an odd cycle. So, for now I stick with my timeline, but will need to monitor. As the months go by it will become clearer how cycle 24 is going to play out.

  5. 2014-15 should be very interesting. Per Clif Droke, the 4, 6, 8, 10, 20, 30, 40, 60, and 120 (revolutionary) are all due to bottom in Oct 2014 (sorry Tiho). Gold peaked in early 1980 and fell to a significant low 2.5 years later and then had a huge rally reviving gold bull market hopes. So that would be roughly equivalent to early 2014. If gold goes sideways between now and then one could see that tulip bulb type valuation occurring so many are expecting.

    1. Kent,
      In addition to what your were syaing about the commodity bull havin finished in 2011, I noticed in February the long declining trendline 2000-2011 in the DOW:Gold ratio broke upward. This implies great danger for the commodity bull. When the down-trendline 1980-2000 broke it signalled the beginning of the commodity bull as much as it could have ended it in February this year. I would be very cautious with gold. Of course, anything is possible but I prefer stocks here.

    2. Cheers Kent – thanks for your comment above.

      I take note of the “… so many are expecting” phrase you use referring to the tulip bulb bubble – I have started to wonder if the so-called “contrarian” long commodities view has actually become too crowded recently?

      As Milan mentioned above, gold is due to break upwards if it follows its 1979 historical rhyme – but if this fails the PM market could get a massive clearout, clearing the way for much higher prices over a longer timeframe than is currently expected…

  6. I’m not an expert on the stock market, but I’ve come to notice how the FTSE 100 seems to be following a basic 6-year pattern. A sharp rally in 2003 and 2009, a bit of sideways action in early 2004-2010, and then a late year rally, followed by a rise to about 5500 in late 2005, which saw the FTSE 100 in 2011 crashing back to this level by late 2011.

    Therefore, would it be reasonable to conclude that the FTSE might reach a peak of 7000 points by mid 2013, echoing the top in 2007, coinciding with the end of the gold bull market and the peak of the current solar cycle, initiating a new stocks bull?

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