Month: June 2012

SC24 v. SC14

Posted on Posted in Commodities, Solar Cycles, Stocks14 Comments

Leif Svalgaard suggests solar cycle 24 could be similar to solar cycle 14, which had a long flat top, which is in line with Jan’s comment.

Underlying source: Leif Svalgaard – my notes added

So how did that affect the secular asset cycle back in the early 1900s? As you can see from my notation, the secular peak (which was in stocks) occurred on the nose of the official solar peak, which was near the front end of the flat top. So, if SIDC and NASA are correct in their predictions for a Feb/Mar 2013 official solar peak, then we might expect the secular peak (in commodities) to occur close to that, rather than towards the end of the flat top, if such a top extends out into 2014.

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Agri Commodities Awake

Posted on Posted in Commodities, Indicators, Macro, Solar Cycles, Stocks, Uncategorized24 Comments

I have updated all the models, on their respective pages.

Geomagnetism continues to be a good guide. Here I have highlighted the periods of higher geomagnetic disturbances corresponding to periods of correction for the stock market. The question is whether the most recent period if now over, or continues. Seasonality suggests we should experience fewer disturbances through to August, which if so, would be supportive of upside for pro-risk. That would fit with a period of mean reversion coming to pass away from recent extremes of oversold and overbearish in pro-risk.

The shorter term geomagnetic lunar models continue to perform. The last two lunar turns were on the nose and the cumulative geomagnetism trend has provided an overall route map for the markets. Here are the Dax and the CRB commodities index, with the tails showing the forecast for the next 3 weeks. As yet the model does not show a renewed upturn, but commodities, being below model, have room to pull up.

Which brings me to the title, as in the last week we’ve seen soft commodities wake up and put in daily gains of up to 7% in some foodstuffs, as the hot dry weather in key producer parts of the world comes into focus. Agri gains have been made despite other pro-risk assets pulling back. As I previously stated, whether the extreme weather continues into the end of July is likely to determine whether or not we see a run away rally in soft commodities to new highs in H2 2012.

I have previously shown charts displaying close relationships between the different commodity classes, so if softs do take off in a meaningful way, that should provide the impetus for precious metals to break out.

The all-commodities chart since 2000 doesn’t look too bullish:

Source: Bank of Canada / Reed Construction

Yet, take out energy and a secular bull appears very much in tact. Fluctuations and weakness in oil and natural gas have largely accounted for what some analysts have identified as technical weakness in the overall commodities picture. Commodities ex-energy:

Source: Bank of Canada / Reed Construction

As you know, I believe the secular commodities conclusion is ahead, following next year’s Spring solar maximum. Increasing sunspots inspire speculation and growthflation. The current window of economic weakness is providing the opportunity for another round of global central bank supportive and stimulative interventions. More needs to be done in this regard, but I expect the natural pick up in growth, speculation and inflation combined with the aid of the central banks to come to fruition.

Currently, we continue to see problematic levels for Spanish and Italian CDSs. Economic Surprises continue to languish. Chinese leading indicators came in better yesterday at +1.1% (Conference Board), but other leading indicators have been largely negative. I am not belittling these issues, but refer you again to the secular position and recent extremes in indicators, whereby we are more likely to see pro-risk rise on slight improvement in these areas, rather than fall again.

Here is someone else who shares my view that secular stocks bulls need redefining from the nominal lows, and concurs that the new secular stocks bull began in 2009, noting the similarities to the last two secular nominal lows.

Source: Federated Investors

And here is a chart from Scott Grannis showing how US housholds have largely completed their secular deleveraging, allowing the private sector to releverage from here (despite the increase in public debt). This also fits with US housing increasingly showing it bottomed already.

Source: Scott Grannis 

Evidence increases that we are into a secular inversion period. The timing is however critical – when to switch out of commodities and bonds and into stocks and real estate, in terms of longer term buy-and-hold. I maintain the blow-off top should still be ahead for commodities, which provides the best opportunity out of the 4 classes into 2013 – I believe. But that will be the final pop, as relative cheapness of stocks and real estate to bonds and commodities reach historic extremes.

Roundup into the FOMC

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Another bullish day yesterday for pro-risk, and we are now at dual resistance on the SP500:

Source: TSP Talk / Decision Point

Yesterday was the new moon, and downward pressure now emerges on my lunar geomagnetic models as of tomorrow.

We also see short term overbought signals that suggest a pullback is required, such as on the Nymo:

Source: Stockcharts

It gives us a set up whereby today’s FOMC could disappoint the markets, because of the trio of short term overbought, technical resistance, and lunar/geomagnetic down pressure as of tomorrow.

Now let’s just step back a moment and see the bigger technical picture.

Bullish percent and put/call ratio are down at the low extreme still, suggestive of a more enduring rally.

Source: Stockcharts

Hulbert Stock Newsletter sentiment is at the low extreme level that suggests a more enduring rally also.

Source: Hulbert / Sentimentrader

A spike in bearish ETF volume is synoymous with previous important lows and significant upside ahead.

Source: Sentimentrader / NYSE / Bloomberg

The recent pop in insider buying is suggestive of the market rallying ahead, as this smart money historically calls it correctly.

Source: Insider Score / Technical Take

And a low extreme followed by a new upturn in breadth also reflects important previous bottoms.

Source: ShortSideOfLong

In short, the technical picture for US stocks is bullish in a multi-week/month timeframe. So, if a short term pullback comes to pass, it is likely to be followed by further upside. If we draw in recent oversold/overbearish extremes in global stocks, commodities and the Euro, and the recent parabolic rise in treasury bonds, we have further support for an enduring move out of safe havens and into pro-risk.

Yet, the global macro picture continues to deteriorate. Economic surprises continue their downtrend and don’t display a pull-up ahead of a stocks rally, as we have seen the last couple of years. Leading indicators continue to decline – yesterday Australia came in at -1.4% (Conference Board). Euro CDSs continue to flirt with records.

As I previously stated, a mean reversion rally away from the oversold/overbearish extremes in pro-risk was likely to occur, regardless of the outlook, and we are seeing that currently. Either leading indicators and economic data start to improve and pro-risk does more than just mean-revert, or mean reversion then gives way to further declines.

US earnings begin again with Alcoa 9th July. The recent off-season beat rate has been almost 80% which suggests we may see a bullish earnings season.

Presidential cycles are supportive of upside into the US November elections, but that is largely because the President creates a positive backdrop into the elections, with concrete actions and also data spin. We start today with the FOMC and see how supportive the outputs are. Meanwhile, European leaders still need to do significantly more if they are to diffuse Euro CDSs. China also appears to need to do more to stimulate and other countries also.

Agricultural commodities had a bumper day yesterday, as concerns over the hot dry weather came to the fore. One day doesn’t make a trend but data shows that commercials were taking positions, not just speculators. I believe June and July’s climate data will really determine whether or not we see a major H2 rally in soft commodities this year.

I am going to take a couple more pro-risk profits today, selling into the strength before the unknown of the FOMC, but still retaining the vast bulk of my pro-risk positions. As I stated above, there are reasons for a short term pullback (unless the Fed really goes full-stimulus, which I don’t believe they will).

Thereafter I remain of the view that the speculative push into the solar peak of 2013 will occur. As noted above the technical picture for Euro, dollar, bonds, stocks and commodities very much suggests an enduring rally should emerge here. I therefore believe slightly less bad news in terms of leading and current data and developments is likely to spur pro-risk higher, i.e. it doesn’t have to be great, just better. I also believe we are in the midst of another period of global central bank easing and stimulating action and that we will see further rate cuts and credit easing actions and the like.

Markets Update And The Secular

Posted on Posted in Commodities, Indicators, Macro, Solar Cycles, Stocks14 Comments

So it’s been range trading but with an upward bias for the markets into the coming weekend’s Greek elections. Greek stocks got a 10% pop yesterday on unofficial polls pointing to the pro-austerity party winning. Natural Gas also advanced over 10% – the two biggest dogs of recent times sharing a bumper day together.

Economic Surprises continue in their downtrend. The latest leading indicator readings for the UK came in positive and Korea just slightly negative – the global picture continues to be mixed at best. Italy and Spain CDSs continue to flirt with records. The UK government announced measures to improve credit. Now we see what the FOMC delivers next Wednesday. I don’t expect QE, because the US economy is doing relatively OK and it would likely only serve to push up asset prices rather than boost the economy, but I do expect a Twist extension, or something similar, as letting Twist expire and doing nothing would amount to tightening. I expect they will downgrade their wording on the economy and recommit to doing more if things worsen.

If the Greek pro-austerity party wins and the FOMC delivers something similar to my expectations, I expect that to be enough to rally pro-risk. Stocks, commodities and the Euro continue to display oversold/overbearish readings, so mean reversion remains the most likely. If something less pro-risk friendly occurs in the next week, and we see falls in pro-risk, then I expect the pro-risk rally just to be postponed a little. TSP Talk highlight some historic rhymes that reflect the two scenarios of rally-now or rally-later:

Source all: TSP Talk / Decision Point

Everyone can see the inverse Head and Shoulders on the stock indices currently, which by textbook would see us break up and rally significantly in the coming week, but a couple of historic rhymes also show that a drop and higher low could come to pass over the next few weeks before a rally.

I have trimmed back my pro-risk positions very lightly today, taking profits on some of those that picked the bottom, but leaving the vast bulk in tact. The Greek elections and FOMC are uncertain. The new moon occurs Tuesday but geomagnetism is expected to lead into it. It feels a bit more of a lottery than usual, but nevertheless, I remain heavily long pro-risk expecting that we will see (i) a mean reversion rally away from oversold/overbearish (whether that has already begun or needs another low ahead first) and then (ii) a commodities secular bull rally conclusion from here into next year’s solar maximum together with an accompanying rally in stocks that ends before commodities make their final mania.

So how might my secular expectations from here come good?

First, a natural pick up in growth and inflation, as per action into previous solar maxima. Speculation in commodities will be the key driver of the inflation side. Evidence of a pick up in leading indicators and economic surprises, particularly in the US and China, would confirm a pick up in growth and encourage that speculation into commodities, but as yet we don’t see that.

Second, co-ordinated global policy responses in easing and stimulating would also provide the push in growth and inflation. This process appears to be underway with recent intervention in China, Australia, UK and others. How quick and how comprehensive the global action is from here, remains to be seen. The European debt accuteness needs further action, as the Spanish bank programme failed to satisfy. Some kind of action by the Fed is expected, and most likely needed, to satisfy the markets.

I continue to expect we will see a combination of the natural pick up in growth (very supportive monetary and fiscal conditions worldwide, oil and commoditiy prices recently receding) together with a series of global policy reponses, so both elements, but for now this remains tentative.

Thirdly, a supply-side push on commodities. Into solar maxima we historically have seen war, protest and revolution. As sunspots rose in early 2011 we saw the Middle-East and African uprisings and UK protests. As sunspots are rising again currently we are seeing an increase in protests in Russia and fighting and protesting in Syria. Iran remains a potential flashpoint as a key supplier of oil. A perceived supply disruption would push oil prices and by association food prices. Again, this remains just potential for now, but there is also a possible supply-side push in food, without oil’s input. In the first half of 2010 we saw several months of global temperatures being at all-time records, whilst soft commodity prices remained fairly depressed. The result was a major rally in food prices in the second half of 2010 as those record temperatures devastated plantings and harvests. Here in 2012, food prices are again currently depressed, and although global temperatures weren’t extreme in January-March, in April we saw the second highest ever global temperatures for that month on land, and May’s stats, just released, reveal that May was the hottest May ever on land.

Source: NOAA

The result is current drought and excessive dryness in US, Argentina, Russia, Korea and Australia. If we see another couple of months of such extremes, I expect food prices to surge again in the second half of 2012. Recall that global stockpiles remain low, but record plantings depressed prices. If these plantings are decimated by dryness and drought, then the critical stockpiles come back into focus. Food and gold prices reveal a close correlation, so a push in food would likely be accompanied by a push in gold, as an inflation hedge.

Fourth is the secular position for equities. Recall that my charts comparing historical secular stocks bears reveal that at this point stocks are unlikely to see much lower in nominal terms again, and that we should be looking upwards to stocks, not down. We should see a rally in stocks here, which is also supported by presidential cycle seasonality, but which ends before the commodities final mania ends. There is an interesting situation with European equities, whereby they have reached their secular bear valuation buy signals at this point.

This table is from Goldman Sachs taken in mid-May, showing the cyclically-adjusted P/E ratios for key countries:

Source: Goldman Sachs

Historically, a secular bear ends when CAPE reaches below 10. You buy at that point and are rewarded for the next 10 years with an average return of around 15-20%. Furthermore, very good buy opportunities have arisen when FYPE (forward earnings valuation) exceeds CAPE. As you can see, Spanish and Italian stocks are well below 10 and the FYPE exceeds the CAPE too.

For reference, the lowest CAPE historically that we have ever seen was 3, reached by both Thailand and Korea. Guess what? Greece has now beaten that with a CAPE of sub 2. So, with some confidence we can say that buying Greek, Spanish and Italian equities at this point is likely to pay off handsomely over the next 10 years, but clearly the risk is for more downside before the upside eurupts.

Here is the chart again showing that the p/e for Germany is back at the last secular lows.

Source: SG

Here we can see the Eurostoxx index has made a third major low in this secular bear market. 3 major lows have defined historic secular bear markets, before a new secular bull erupts.

Source: Scott Grannis

Here is the UK cyclically-adjusted P/E. It is also back to where it was at the similar point in the last secular bear (around 1979). I note that it made its nominal low in the middle of the last secular bear, which looks a little different to the equivalent US chart which made its p/e low at the end.

Source: SG

Of course not all stock indices around the globe will peform the same. Not all stock indices will end this secular bear market with CAPE under 10. Here is Japan’s chart:

Source: Vector Grader

In the last secular bear, Japan’s ending CAPE was around 20. This may be accounted for by it being a leading index then, going on to its amazing peak in 1989.

Is the US the leading index now? Could we have bottomed with the US at CAPE 20 and European stocks in single digits? Well I think not yet, but we are getting close. I believe some other major indices need to drop beneath CAPE 10, not just the PIIGS, but we can see the likes of the UK and Brazil are close. I believe that more comprehensive drop beneath CAPE 10 will occur with a bear and recession following next year’s commodities finale. But the likes of Spain and Italy are so cheap now that I wonder whether they may now go on to outperform, and not look back. It’s either that, or they go on to join that club of the cheapest CAPEs ever. Clearly we need some more enduring and satisfying policy responses in Europe to enable them to rally sustainably, but at the same time once we have those in place, European stocks are likely to be much higher.

In summary, I think the message is clear that we are reaching towards the end of the secular stocks bear in terms of valuations. I don’t believe we need to see US stocks halve in order to reach under CAPE 10, as we can see from the range of ending CAPEs in the last secular bear. I expect that once we see the likes of Germany, Brazil and China under CAPE 10 we are done, and I expect that point to come next year or the year after, in a cyclical bear following a commodities mania conclusion linked to 2013’s solar maximum.

Leading Indicators

Posted on Posted in Indicators, Macro10 Comments

The latest leading indicator readings from the Conference Board came in for Spain and Japan, both in the negative. The table below has turned from almost all green to at least half red.

Source: Conference Board

The OECD leading indicators for June are in, and the picture is mixed. USA, Japan and Russia are both positive and upward trending. UK, Germany, Canada and Brazil are negative but trending upwards. China and India are both negative and trending downwards.

Source: OECD

ECRI leading indicators for the US have dipped into the negative and the trend is down. Note that their indicators have been very volatile since 2008 and two dips to -10 in 2010 and 2011 did not bring on either a recession or a bear market.

Source: Dshort / ECRI

Drawing all together, the picture is one of mixed to negative, globally. There is the potential that we are seeing a new turn up, looking at the likes of the UK, Brazil and Canada, that may be followed by the weak turning up also, such as India. However, there is also the potential that the weak could drag down the others, and that the current outperformers, such as USA and Japan, are starting to turn down. Based on solar cycles we are due a natural upswing. That aside, we have evidence of a new round of global government invervention, in rate cutes and various stimulus/aid measures. The question is how far they go and how quickly, to help leading indicators improve. With Spanish and Italian CDSs still pressuring record levels, the ECB is going to need to act again. The FOMC on 20th June is also going to be important.

One Week Later

Posted on Posted in Bonds, Commodities, Currencies, Macro, Solar Cycles, Stocks10 Comments

As expected, we saw a reversal at the start of last week. Capitulative Breadth hit the 7-10 capitulation zone on Monday (and has since dropped back to zero due to the rallying). Monday began with more sellling then made an intraday reversal and daily hammer candle – another bottom signal. We printed the missing positive Nymo divergence between the lows of 18th May and 4th June, and positive RSI divergence between the two also. The week then progressed bullishly but Friday’s action in pro-risk, particularly in commodities and the Euro, looked weak for a while but by the close had reversed strongly. The media assigned rumours of a Spain banks bailout coming at the weekend to the reversal. This duly occurred on Saturday and we will see market reaction this coming week (Spanish CDSs had pulled back a little last week, we shall see if this can be sustained this week). Technically we were due an enduring rally in pro-risk, as per the many indicator extremes I posted in my last few entries. Central bank fuel for such a rally was mixed however. China and Australia cut rates. The Bank of England stayed put. The ECB did not cut rates. Bernanke did not telegraph further QE, as some had also speculated, but left the door open to do ‘something’ – or nothing – at the June 20 FOMC, subject to the latest economic developments. And now Spanish banks bailed out by the EU.

ECRI leading indicators for the US dropped to -2. Chinese data disappointed again this weekend (Chinese stocks made bearish technical action last week, contrary to most pro-risk, and despite the rate cut). Citigroup Economic Surprises languish and haven’t made a turn-up ahead of stocks bottoming, if that was a bottom, as they did in 2011 and 2009. So the economic picture remains weak and the question is whether central banks have begun another round of easing and aiding and stimulating, with last week’s announcements just the beginning, or whether they feel they can largely stay put and see how things develop. Well, suffice it to say that if the picture does not improve they will likely intervene more, but what we need to know is whether we will see more downside for pro-risk ahead if they don’t do more currently.

Let’s return to the techincal picture. Look back in my previous handful of posts to see the extremes reached in terms of overbullish/overbought treasuries and dollar and oversold/overbearish commodities, Euro and stocks. One thing missing for equities was an Investors Intelligence sentiment washout (whereas AAII had made such an extreme). Last week percentage II bulls finally dropped into the historic extreme low zone, but percentage bears did not, i.e. still quite a few neutrals. Accordingly, the bulls minus bears chart still doesn’t show a historic extreme:

Source: Shaeffer / Investors Intelligence 

Also, Chris Puplava notes the lack of panic selling compared to 2009, 2010 and 2011 major bottoms.

Source: PFS Group

On the other side of the ledger, equity fund flows have hit historic pessimistic extremes, matching real investor action with the sentiment shown in AAII. Also, treasury yields made an inverse parabolic move into the beginning of Monday that resembles other historic blow-off parabolic moves that normally don’t come again for some time. The action as of Monday was a v-bounce that could mark the reversal, and if so, that could spell an enduring move into pro-risk from here.

Source: Chris Kimble

The S&P500 looks pretty bullish. As per Chris Ciovacco’s chart below, we appear to have broken out and backtested important resistance. The question is whether stocks can go on to make a higher high than the end of May at the start of this coming week. If they can’t, then an inverse Head and Shoulders pattern could be in the making as long as stocks don’t exceed last Monday’s lows.

Source: Chris Ciovacco

NASA’s updated solar prediction still forecasts Spring 2013 for the solar peak, and still forecasts it to be a weak solar maximum historically. The sun is fairly active currently, which is bullish, and this should continue into next year. Some geomagnetism early-mid last week has pushed down a little on my short term model, but the message remains of a likely bottoming here, with seasonal upward pressure into July. Near term, there is the scope for upward pressure this coming week into the new moon of 19 June. I will update all models on Tuesday, with the extended NOAA forecasts, but here is the up to date Dax:

Expecting upward pressure into the new moon, I don’t plan to take profits on any of my pro-risk longs yet. The next couple of weeks give us the BofJ meeting, the Greek elections, the FOMC and other Euro meetings. Between them there is the potential to really give this rally some momentum and start to fulfil the historic positive seasonality in an election year from June to November. Or there is the potential to disappoint the markets and leave the focus on weak data and Eurozone issues.

Here is what I think. Pro-risk is overdue a counter trend rally here, a sustained upmove that provides some mean reversion for the stretched oversold/overbearish extremes. I expect us to to make that rally now. If pro-risk is heading for another lunge lower, to perhaps give us the missing II sentiment and panic selling extremes then I expect that to occur after we have made a decent retrace upwards for a few weeks. The clues will be in the health of that up move and the developments in economic surprises and leading indicators – i.e. if we rally up but all that deteriorates further then I’d be looking to take profits. However, rising sunspots, seasonally less geomagnetism, presidential seasonality all support mid-year upside. The blow-off move in treasuries suggests an enduring flow into pro-risk from here also. Extremes in US dollar COT and bullish sentiment, and the reverse in key commodities also support an enduring flow the other way. The secular position is closely linked to the solar cycle position, and we should expect a speculative push into pro-risk, with commodities accelerating into a final upmove. I consider us in a different position to 2010 and 2011 as we reach up into the solar peak less than a year away. I think it is more likely we print a strong mid-year this year, rather than a repeat of the last two years. I continue to expect a natural turn up in growth, as per the growthflation of historical rhymes, and a central bank invervention inspired turn up in growth also, at this point. Clearly though, I am frontrunning, and we need to see the evidence build to support that view. For now, we are tentatively trying to start a pro-risk mean reversion rally, and no more.

One last chart. An alternative view of secular cycling using consumer confidence readings, with my notes added. Consumer confidence topped out just before the secular stocks / solar peaks of 1968 and 2000, and bottomed out just before the 1980 secular commodities /solar peak. It made twin lows then, like it has in the current secular commodities bull, as shown by the circles. In keeping, consumer confidence should have made its secular bottom, and supporting this the nominal levels reached reflect the last secular lows. A pullback in confidence should be ahead into the secular commodities peak of 2013 and subsequent bear market, but within a new longer term uptrend.

Underling Source: Daneric / Sentimentrader

Weekend Update

Posted on Posted in Bonds, Macro, Stocks1 Comment

As I’m not here next week, here is an additional update following Friday’s falls.

Economic data really disappointed again. The only positive is that Surprises are reaching towards a level of historic reversion. As data worsens, analysts move the bar lower, and eventually the data starts to positively surprise.

Source: Bloomberg

Jobs data was particularly poor, perhaps boosting the chances of Fed action given their dual mandate includes maximisng employment. US ECRI leading indicators came in at -0.6, still fairly neutral but echoing the weakening trend.

Euro CDSs continue to climb. Spanish at new record highs. Policy response expected soon.

Source: Bloomberg

The June calendar looks like this:

6 June: EU meeting to resolve failed banks

7 June: ECB rate meeting – expected 50bp cut – and Bernanke Testimony to Congress – Danske Bank expect Bernanke to already state his QE intentions at this testimony

13 June: Germany growth pact meeting

17 June: Greek elections

18/19 June: G20 summit

20 June: FOMC

I believe the markets are going to get satisfaction in June through policy response, both in the US and Europe, but also China could help stimulate too. The recent commodity price falls and weak jobs data give the Fed the legroom and reason to stimulate again in some way. Obama’s chances of re-election will only improve if the markets and economy turn up again.

Policy response aside, I believe we may also see a natural turn up in growth ahead enabled by lower oil prices and lower commodity input prices on the whole, a cheaper Euro enabling more export led growth in the Eurozone, plus the natural turn up in activity historically occurring as sunspots ramp up into the solar maximum. So I continue to expect a combination of central bank intervention together with a natural turn up to provide the growthflationary finale into next year.

Turning to the market action. Dax stocks above the 50MA are now at zero.

Source: Underlying Dax

A Demark weekly buy set up is in place following Friday’s falls to new lows. The chart below was taken on Thursday.

Source: Andrew Nyquist

We now have the positive Nymo divergence that was missing at the last low.

Treasury yields have made a blow off bottom.

Source: Stockcharts

Thanks to Tiho for this summary of other extremes:

Dow Jones is down 18 out of 22 days and DSI just hit 10% bulls – US equity market experienced a “90% down day” yesterday – Crude Oil is down 21 out of 22 days and DSI just hit 8% bulls – US Dollar is up 21 out of 25 days and Euro DSI just hit 7% bulls – US Treasury 10 / 30 Yr yields are at 220 year record with DSI hitting 95% bulls.

Capitulative Breadth hit 5 on Friday but is expected to reach true capitulation levels on Monday. Panic has reached towards the extreme but could also top out higher on Monday.

Source: SigmaTradingOscillator

Vix has also reached the kind of overbought level associated with stock bottoms, but could also nominally jump higher on Monday.

Underlying Source: Cobra / Stockcharts

With Monday being the full moon and peak downward pressure, I believe the evidence is pretty compelling that we may bottom out on Monday. Capitulation is close at hand, and further falls on Monday could bring about an intraday reversal and hammer candle. If not, then Tuesday for the snapback rally to begin.

The alternative scenario of a Puetz crash window beginning on Monday and lasting a couple of weeks I believe is now remote due to the extremes and capitulation-at-hand evidence. I am therefore looking to make my last additional pro-risk buys on Monday, unless some surprise good news at the weekend means we break upwards from the outset on Monday.

I have updated my short and medium term models. Commodities are well below. The SP500 remains above but the Dax below. As the Dax is cheaper by p/e and the cheaper Euro should help German exports, maybe we will see a period of outperformance in the Dax. Seasonal geomagnetism should be less into July, which means the models should start to turn upwards.

Update, P/Es and Website

Posted on Posted in Commodities, Stocks15 Comments

Global Economic Surprises resume downwards, Euro CDS continue upwards, pressure on pro-risk continues in the absence of any notable policy responses. At the time of writing, Europe Friday morning, US stock indices have yet to take out their low of my ‘Capitulation’ post two weeks ago, but the low is at risk as the Dax has broken it.

I maintain two scenarios, that share similarities with Jan’s. The one is that we fall into Monday’s full moon and thereafter a true rally emerges. Supporting that are the extremes that we currently see, such as RSIs sub 20 on crude oil and Euro-USD, insider buying and AAII sentiment at historic market bottom levels, public opinion the US dollar at a new record since 1999. A snapback rally is overdue. We also have potential basing patterns in US stock indices and gold. The second scenario is that the full moon, forecast geomagnetism and Puetz crash window keep the fear in overwheming mode and that we fall further over the next week or two, until we get to the more concrete action in terms of Greek elections, FOMC and Euro conferences later this month. I would be looking for a positive divergence in the Nymo on further falls. If we do fall further, in this second scenario, then some of the indicators are going to be at crazy extremes. Needless to say, I will be attacking any further downside, and maintain that these are glorious pro-risk opportunities here.

First a chart on gold. Here is gold priced in Euros. A more bullish chart than in US dollars, as it shows a pennant forming in an uptrend. The US dollar strength perhaps therefore accounts for why gold in its usual pricing looks technically dubious.

Source: Stock Sage

Next, moving to equities. Kent referred to p/es and his expectation to see us end in single digits, with which I concur. Here is the p/e flow in the last secular bear market of the 1970s:

Source: Zealllc

As can be seen, p/es came down whilst stocks moved up and down – inflation ate away at the p/es whilst supporting stocks nominally. The inflation situation is comparable today – see the Shadowstats, real undoctored data, below:

Source: Dshort

I remind you that we have historic paralells in the 1940s – inflation spike in 1942, then 5 years later higher inflation spike coinciding with solar and secular commodities peak – and in the 1970s – inflation spike in 1975 and then 5 years later a higher inflation spike coinciding with solar and secular commodities peak. In the current period we saw an inflation spike in 2008 and next year is 5 years later and the expected solar peak, and in my expectation, the secular commodities peak. So inflation should eat away at the p/es whilst stocks do OK in nominal terms.

Yesterday I showed the German stocks were already back at their last secular low p/e valuations. Scott Grannis recommends that NIPA profits should be used to assess p/e and this is the picture for US stocks:

Source: Scott Grannis

You can read more about that here, but the message, like with the Dax, is that stocks are back to historically low valuations. It doesn’t mean they can’t go lower, but it again supports my suggestion that we should be looking upwards for equities, not downwards. And one more: Japan:

Source: Japan Stock Exchange / Vector Grader

 Japan by p/e is also back to its last secular bear market ending low.

And lastly a little on my website. I launched Solarcycles.net in mid-February 2012 and now have my first 100,000 hits, so thank you to all who visit and read my analysis. These are the top visitor sources:

United States 35,608

United Kingdom 13,721

Canada 5,725

Ireland 4,267

Australia 2,873

Hong Kong 2,220

Italy 2,081

Czech 1,884

Spain 1,774

Switzerland 1,341

India 1,198

Germany 1,036

Most corners of the globe are represented further down the list, and it’s fulfilling, for me, to see the global reach.

My most popular pages/posts, bar the obvious Home page, have been the Short and Medium Term Models and the Timetables, followed by the post on Solar Cycles and Astro Trading (I believe a principal reason for that is that Googling astro trading returns my page) and the Opportunities / More Opportunities posts of two weeks ago (I have noticed previously that when market action becomes panicky, more people stop by, no doubt looking deeper and wider than they normally would, to make sense of the falls and shore up their strategies).

My old site, Amalgamator, has now been removed from the web. If there is anything from the old site that you miss or would like to see again, let me know, as I have a record of most entries and charts.

I am not here next week. I am on holidays and will only have my phone to keep abreast of the markets. There will be no posts or model updates next week.