Charts For Thought

Other analysts’ views of the bigger picture:

Market Anthropology show this technical analogy with 2007 (below). What happened next? The beginning of the waterfall declines all the way down to March 2009. I don’t believe that’s where we are now, but the technical similarities are not in doubt. Analogies can work – e.g. the Mammis sentiment analogy played out in H2 2011 very well. Yet, 2011’s mid-year correction provided a similar close analogy with 2007’s top and subsequent action, which various analysts noted at the time, but eventually failed as the market rallied out of it late in 2011. But if the analogy below is to play out a little further, then we might look to 1400 as a potential target for the Sp500.

Source: Market Anthropology

Prometheus show a (proprietary) cyclical bull market top signal took place at the top at the start of April this year. They believe the cyclical bull in place since March 2009 has topped out. If that’s the case then we should not make a higher high, and 1400 might again be a suitable limit before renewed and deeper declines.

Source: Prometheus MI

On the other hand, a golden cross (moving averages crossing) that just occurred on the SP500 suggests significant advances ahead to new highs. This is coupled with a death cross on the Vix also just happening – a twin occurence that previously gave way to strong gains for stocks. When I draw in my main references (solar and secular positioning), this is more aligned to my predictions – new highs in equities in H2 2012, before we consider any new cyclical bear market.

Source: Schwab

Of course not all 3 chart predications can come good, but there is perhaps a little window here where they can unite in calling the index up towards around 1400 before they diverge.

Lastly, here are (i) stocks and (ii) bonds as a percentage of household assets (US) with my channel lines added. The message I suggest is that we are close to the end of the secular bear market in equities and the secular bull market in bonds or even beyond that point.

Underlying Source: Schwab 

Addition:

Laslo Birinyi’s historical analysis of equity bull markets looks like this:

Source: Birinyi

He says that bull market generally have four quartiles, lasting around 410 days each. The biggest gains come in the first and fourth quartiles. He believes that from here stocks should make a siginificantly higher high accordingly in the fourth quartile which is soon to begin.

Here are my calcs for the 2009 bull:

Quartile 1: March 2009 – May 2010: 80% gain

Quartile 2: May 2010 – July 2011: 13% gain

Quartile 3: July 2011 – September 2012: the table average of an 18% gain would put the SP500 at 1593 by September this year

Quartile 4: September 2012 – November 2013: again using the table average for the fourth quartile, the Sp500 would be around 2200 by November 2013 which would mark the end of the cyclical bull (NB: Birinyi comes up with an ending level of 2100, which cross references with my calcs).

My take is that Nov 2013 is too far out, IF the solar maximum comes good in Spring 2013 (note Jan has been doing more solar work and estimates the solar max could occur Jan/Feb 2014). But as the calcs are based on averages clearly that could come in earlier but still generally fit with Laslo’s analysis.

I have highlighted the first two quartiles below.

If 1593 by September 2012 seems far-fetched, then note it would be achieved with a return to the top of the cyclical bull channel:

Again, all the predictions in this post can’t all come good. It’s up to you to work out which are the red herrings.

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11 thoughts on “Charts For Thought

  1. Hi John, could you elaborate more on the CTS signals mentioned above and the source. Who or what is Prometheus?

    1. PrometheusMI.com – I found them whilst doing some research a few weeks back rather than coming recommended – so as always I will assess the results versus the forecasts over time and keep or delete them. My impression on a few weeks reading is that there is a quality to their research but that they are conservative. What constitutes the signal is behind the subscirption paywall. So the message is a pinch of salt. If anyone knows of them please speak up.

  2. John, I’m not sure if you noticed, the golden cross you refer shown in the chart from Schwab didn’t just occur, it occurred at the end of January this year. That chart looks old. Notice too that it doesn’t show the April 2nd high. Since the GC on Jan 31st a death cross has not occured upon this most recent decline to the June 4th low. The 50 has stayed well above the 200 the whole time and is now hooking back up after Friday’s big rally. It just means the Jan 31st GC is still active is all, no new GC has occured. Cheers.

    1. You’re right, thanks Martin. I was fooled by google images’ dating of that chart. OK, the message is the same then as the GC still stands, we are just further into the process.

  3. Birinyi is a great investor, but his data only goes back to 1960s and pretty much uses the super bull from nominal 1974 low to 2000 top as the main data source. That is not good enough as it destroys our view in expectations of another great run up for years and years.

    The end of the secular bear market in equities cannot be here because Shiller P/E 10 is nowhere near single digits. As a matter of fact it is overvalued in high 20s. Furthermore, your own chart shows above average exposure to equities by households. I rather see it in single teens than where it is right now. Finally, all great secular bears have had 3 or 4 major sell offs and so far we have only done 2 since year 2000. I do believe March 2009 nominal low was most likely the low, but inflation adjust market will go lower…

    Finally, I think bear market is near and we are topping in US equities. Global MSCI index has already topped and so have Asian, Latin American and European equities on their own. Asian & commodity currencies have also topped, and so have industrial commodities like Oil and Copper. Orthodox top was in May 2011. S&P’s Value Line as well as Russell 2000 also topped in May 2011.

    1. Down into 18 July would make for a double cycle inversion – down into that new moon, and up into the full moon just gone – got a view on that? Not impossible, but clearly the inversions happen less than the normal action.

  4. Hi John

    Yes…..I have mulled on that for a day or two and cannot fully reconcile the obvious conflict. As is often the case I have entered a position at a point where there is conflict within the analysis, but by the time the picture unfolds there will be more clarity.

  5. The only addition is this. I have come to the conclusion that an inversion is similar to a gap. I think it is where one side of the supply/demand ratio overwhelms, maybe due to a piece of news, a surge after an inflection or an exhaustion at the end of an extended move. If they have similar properties the corollary is that they have the ability to turn quickly and create an “island reversal”. So maybe this is one of those occasions.

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