NASA’s latest solar cycle peak timing projection now puts the likely peak at Fall/Autumn 2013. This was previously Spring 2013.
SIDC’s forecast currently remains for a Spring peak:
If NASA are correct, this has implications for my market forecasts, as everything is pushed out by 6 months.
This is the timetable that you have seen before, based on a Spring 2013 solar peak:
If NASA’s new prediction is more accurate, then the top line in the table changes to this:
It would mean that commodities may not make their parabolic finale until late 2013 or early 2014. Working backwards, commodities could therefore begin to truly accelerate from as early as Spring to as late as Fall/Autumn 2013. The post solar peak recession would be pushed out to starting likely 2014. (Remember, this is a guide based on the previous three secular commodity bulls and associated solar maximums – outliers are possible). This shift would not affect my commodities strategy: hold long until we get to a parabolic ending move, and add on any major weakness. I will be looking to exit commodities on evidence of (i) an unsustainable parabolic move (ii) overbought and overbullish extremes and (iii) extremes in stocks:commodities and realestate:commodities ratios.
Based on this new September (approx) 2013 solar peak, here are the US stock index charts again showing our current secular position based on historical repetition, updated. The first shows the SP500 in the 1970s secular bull. Stocks rallied from here into the solar peak, i.e. for another 12 months, but with a lot of back and forth, and then stocks fell right after the solar peak, as high commodity prices helped bring on a recession.
Next we see the 1940s secular commodities bull period and the Dow Jones. Apologies but it is split across two charts. From the current point, stocks would be peaking, making a swift 20%+ fall, and then tracking sideways into the solar peak, and thereafter taking some time to pick up momentum. I believe the 1940s is the closest mirror of our current secular commodities bull, due to the shared ultra low interest rates environment.
And below we see the 1910s secular commodities bull period. Stocks rallies from here for a couple of months and then fell back again, falling around the solar peak, as commodities peaked at different times.
Below is our current secular bull period. Note the two bottoms that I have labelled, and see that all the 3 charts above share the same two important bottoms. In all 3 secular periods above stocks did not return to those kind of levels i.e. any third low was some way higher up. I have suggested before that since the 2009 low we are in a gradual process of repair. From financial system meltdown to something less armageddon-like and then something less bad still. We still have many issues, but once we have few, the new secular stocks bull will already be mature. For me, there is slim chance of stocks breaking down to 2009’s lows, as evidenced in these charts. Based on these historical mirrors, the next cyclical bear should be 20-80% higher than the 2009 low, i.e. 800-1200 on the SP500.
The three historical precedents don’t provide a united picture for where stocks go next, over the next 12 months. One went up, one down, one up then down. If the solar maximum occurs in Spring, rather than Fall/Autumn next year, per SIDC’s continuing forecast, then the ‘we are here’ markers shift along 6 months. In all 3 previous secular comparisons that would put us more into a sideways range period, making stocks neither a buy nor a sell.
However we have other means to identify when stocks are making a cyclical bull top:
(i) overbullish and overbought indicator extremes
(ii) a back and forth range in price (a price topping process) whilst negative divergences appear, particularly in breadth.
(iii) tightening of interest rates, either by central banks or by the markets pushing up bond yields.
(iv) leading indicators falling
(v) economic surprises falling
(vi) earnings falling short
(vii) inflation rising to over 4% official, or thereabouts
(viii) yield curve abnormal or inverted
All these have historically marked equity cyclical bull endings. A separate post would be needed to go through these in detail with chart evidence, but suffice it to say that currently we don’t see enough of these flagging red.
Yesterday’s developments very much strengthened the case for more gains ahead for stocks. A voluminous technical breakout to new bull market highs for the SP500 and Nasdaq and a reversal back up into the range for the Dow Transports (looking like a fakeout breakdown the day before). Plus, not only did the ECB delivered a bond-buying action to the market’s satisfaction, but China approved large scale infrastructure plans in a bid to revitalise the economy, which has propelled Chinese stocks this morning. This kind of stimulus is good news for the commodity bull case.
Treasury yields moved higher, adding to the H&S formation. Gann Global suggest that treasury yields will not revisit their lows of mid 2012, that the secular bull in treasuries ended here, based on historical mirrors. That fits with the chart I presented yesterday suggesting treasuries should fall over the next 12 months and also my cyclical bull ending criteria that rates should rise. It would also provide the backdrop to a commodities finale. Gann Global also project that commodities will pullback soon and provide a last buying opportunity before beginning their run away move.
Back to equities, I suggest we have some room to add to gains and consolidate the breakout, into next weekend’s new moon. Generally speaking stocks are not yet overbought and overbullish, but we are heading towards those levels. So a bit more upside yet, plus the potential announcement of QE or some other stimulus at next week’s FOMC. I will review how things stand heading into that.