Solar Cycle 24 Peak

NASA’s latest solar cycle peak timing projection now puts the likely peak at Fall/Autumn 2013. This was previously Spring 2013.

Source: NASA

SIDC’s forecast currently remains for a Spring peak:

Source: SIDC

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.

Underlying Source All Charts:

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.


19 thoughts on “Solar Cycle 24 Peak

  1. In all of the previous scenarios the US CAPE was at or below its long-term average, whereas today it is some way above average. Does that influence your thinking in any way?

    1. In the last secular stocks bear of the 1970s Japan’s CAPE ended around 20, so not all country CAPEs need to go single digits. Broadly speaking I want to see some of the major countries in single digit CAPEs, but not all need to hit. For the US, the overvaluation is a potential concern, but only if its economy and earnings start to fall sharply comparative to others.

  2. This piece is just brilliance! It is calm, thoughtful, and focused,

    I have so much to learn from you, starting from accumulate commodities on price weakness.

  3. Again my point of view: sep12, new low in dow jones, around 12.700-400, rebound to nov12, and probably bottom march13, target 8.500-9.000, and a big reound like 1978 stronger, like Bovespa a year ago to march12, 0,618 aound six months or more, we are in sep13-0ct13.

    1. I use Hurst cycles and they show exactly the same what you are describing – top now and 4-year bottom between January-March 2013. But for that to happen we should see in the next 3-4 weeks weakness and decent sell off to finish the current 20 week cycle. If there is only mild correction in September will see higher prices. The next 2-3 weeks will tell us the story.

      1. The Industrials of 1966-83, and 1906-23, and nowdays Bovespa Inex-leading index for me- tell us the path of the actual cycle that started in 2000 and probably will finish in 2017 beating the heavy roof since 2000-2007.

  4. This shift in the solar cycles would appear to correlate with the 6yr cycle, as early 2014 would mark 6yrs since Gold, Silver and Oil topped, and by then the stock market would probably be falling, to make a low by 2015.

    My guess is the 2013-15 stocks bear will be a more drawn out version of the 1981-82 bear, shedding 20-25% off the Dow and S&P 500 by March 2015. This bear would mark the last downward lurch before the secular inversion, as this bear market is getting long in the tooth, and the excesses of the last boom have slowly but surely been exorcised from the system.

    One thing that I’m curious about is that if Gold soars then crashes, how can we be sure it will stay down, and not follow the 2008-09 pattern and soar to higher highs within a year? Whenever there is mention of a correction of the gold price, the gold bulls assume it will continue to rise.

    1. What will cause gold to enter a secular bear? (1) gold mining initiated since the secular bull began coming on stream over the next couple of years and increasing supply (2) gold is already historically expensive currently versus stocks and real estate – when it reaches extremes money will pour the other way in an enduring way (3) China derailing and/or tech evolution puncturing commodities and inflation (4) real interest rates rising again as genuine growth re-emerges and treasuries enter a secular bear.
      Gold’s demand has increased the last few years largely due to central bank purchases and investment demand. When confidence restores in dividend-yielding assets, gold will lose its appeal.

  5. very interesting John, this explains a lot on why commodities haven’t taken off the way we were expecting to lately. Now the million dollar question is… do we buy more commodities now or should we still wait a few months more for an upcoming pullback like the one we saw this spring?

    1. I have a comprehensive set of longs so it doesn’t matter to me whether we pull back or not. If I didn’t have those longs then I’d be inclined to wait for pullback and hope the Gann projection comes good. And that would be because we have reached into overbought and overbullish zones on agri and PMs.

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