I’ve been busy with the shift of focus, towards shorter term trading. I advised recently that a poor year for commodities threatens my year end PnL, so pending the validation or invalidation of solar cycle and demographic theories, I am taking action to try to ensure a good year-end figure. What this means in practice is (i) taking profits on markets where applicable (ii) using shorter term indicators and leverage to bring other positions to profit and then close out and (iii) as the range of markets I am involved in narrows, attacking the remaining markets, plus (iv) trading in and out of other opportunities where I see them. So I am gradually reducing the range of markets I am involved in whilst leveraging up on the remaining markets: a combination of decreasing and increasing exposure to keep risk levels satisfactory. And no longer term strategic positioning any more – that will be resumed following this exercise. It’s an enjoyable challenge, as I haven’t used this approach for some time. No guarantee of success though, and only in the early stages.
It remains to be seen whether the solar peak is ahead or behind us, and if it is ahead of us whether the anticipated correlated commodities peak will occur. It is also still not yet clear whether commodities are changing trend into an uptrend, or still in a bear market since 2011. Below, both commodities index and sunspots versus Sp500.
Similarly unclear yet is whether equities are in a cyclical topping process. We see breadth divergences, but not yet deterioration in leading indicators. We see the kind of price oscillation within a range that would mark a top, but as yet no real marked shift in sector performance that would be typical of a top. By my demographic work, we should tip into another global recession and equities bear in due course, but it would be historically typical if this was triggered by tightening: bond yields rise too far (not yet there) or government cuts back on spending/stimulus. On the latter, the US government shutdown, if prolonged, threatens to do the equivalent job of reducing government spending; or the government may agree to spending cuts to raise the debt ceiling (deadline Oct 17th); or the Fed may taper QE (next FOMC output Oct 30th). The near term prospect of a taper looks less likely with the government shutdown potentially shaving off GDP, but it remains out there as unknown, and on that note, commodities typically perform historically (as shown in the first chart above) once equities have topped and the economy has topped, once rate cuts are underway. Clearly that isn’t our current scenario, which adds to the uncertainty over commodities. Plus, again referring to demographics, we have an unprecedented collective global downtrend in place which could potentially overwhelm any possible commodities/inflation rally. Which brings me back to the start: nothing has been validated or invalidated yet in terms of solar, demographic, commodities, equities, bond yields and government spending/stimulus. Gradually developments in all these areas will make it clear, but pending that, my focus is making money shorter term.
So to the near term. Below I show the position of the SP500: at support in a rising wedge. That rising wedge could spell a breakdown ahead, but first a bounce may be in order.
The US government shutdown and debt ceiling uncertainty is affecting market sentiment, but news of a likely agreement could at any point provide a relief rally. If the impasse remains however, then the next two weeks are the negative lunar period which takes us up to the debt ceiling deadline and could therefore keep downward pressure on stocks.
Below is the latest geomagnetic-lunar model versus the commodities index. The geomagnetic trend has flattened out and has a positive edge looking out over the next 3 weeks. Indeed we are into the last quarter of the year, where we typically see more benign geomagnetism and positive seasonality for pro-risk (which I believe are correlated). If equities are not yet making a cyclical top, then there is both a backdrop and a time window in which to rally away from the price range of the last few months.
The US dollar is flirting with major breakdown, but arrives there oversold and overbearish. A breakdown would add weight to a commodities rally, so I continue to watch. Crude oil is typically the main driver of an inflationary commodities rally and looks to have formed a short term low over the last couple of sessions. I am watching that too, as further drops back into the range of the last couple of years would cast doubt on commodities making a meaningful uptrend.
*Updated short term lunargeomagnetic model versus SP500 10 Oct*: