Update

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.

8oct20131

8oct20132Similarly 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.

8oct20133The 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.

8oct20134The 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*:

8oct20135

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51 thoughts on “Update

  1. Excellent stuff, as ever, John.

    Here is a question for all: are markets and (inter)national economic conditions more manipulated now than they were in the 1960’s, 70’s, 80’s, 90’s?

    Also, if solar and geo cycles set the mood music but events or manipulation over-ride, what happens when the controlling situation is removed – is there an echo from the missed cycle or do we just move on?

    1. Hi fieldsman
      The manipulation is a build up of energy, and the bigger the manipulation….etc
      e=mc2
      The energy has to go somewhere,at the speed of light squared .
      Thats why markets fall much faster than they rise.
      Its not an echo ,its a nuclear explosion.
      Bob Einstein

      1. The equation should actually be E = 1/2 mv2, where 2 is the superscript.

        1/2 Mass x Velocity Squared.

        The energy is proportional to mass and velocity, the greater the mass or velocity, the higher the kinetic energy.

      2. According to newton’ law, for every force there is an equal reaction force.

        Right now, the force that is applied to the stock market is by the FED money pumping. The opposing force is the deflationary pressure among businesses. Force acting up on the market is greater than the force downward at this moment in time. Unless, the fed stop pumping money or deflationary force becomes greater. The market force will balance itself out.

      3. Something I’ve certainly chewed over, whether the collective global central bank internventions have sufficiently offset. It will only become clear with hindsight. And ditto the solar cycle related stuff – first we need an agreed solar max.

  2. Thanks, John, you know my point of view, the Us Indices are in the similar top process like in 2007, could see new marginal highs, sideways, or push up to the upper wedge 00-10-13> don´t know from now to the spring ´14 but my bet is that the topping process iniciated in may´13 and we are seeing some divergences between indices, even in US.

    2 options> 1 plunge about 30% similar pattern s&p 80-82
    2 plunge roughly 40-50% similar pattern 1906-23 structure; 0,76 fib near the 2009 bottom.

    Kind Regards

    1. Antonio, This is where I keep daily track of sun activity.

      http://www.spaceweather.com/

      This blurb from today refers to your inquiry I believe. “A minor CME, propelled towarded Earth by a magnetic filament erupting on the sun, could strike our planet’s magnetic field during the late hours of Oct. 9th”.

      geopark

  3. Gann’s Master Time Factor (MTF), the 60 year cycle, is due to bottom tomorrow, Oct 9, and rally to a final nonconfirming top around April, 2014. Some aspects of the MTF, bottomed and topped almost or even to the day. It is only James Flannagan’s GannGlobal commodity index that showed a final top in 1954. Other indices that I’ve seen topped in 1951, which is consistent with the 2011 top. I was hoping to see a commodity crash into Oct 9, which would have set up a good rally. Commodities have been down for 2.5 years which is frequently a good point for a rally. Now is beginning to look more like the Chinese stock mkt, 6 yr bear and counting. Cotton, sugar, and coffee look like a good rally is possible, and after a 2.5 yr drop, a bear mkt rally seems probable in other commodities. The CRB double topped in late 1950 early 1951, dropped almost 20%, and stayed there 20 years. If commodities stayed down 20 years now, that would also fit with the 30 year commodity cycle, 20 years down like 1980 to 2000 followed by 10 years up like 2000 to 2010, approximately. Overall, the 60 year cycle says bull stk mkt, bear commodity and bonds. Mild inflation and a strong $. So far it’s working except even though the $ bottomed in 2008, it is flat, not strong. A sharp drop in the stock mkt would be normal now. It would be like an Elliott 2, a double bottom that revives the bearish fears of the bottom and keeps many away for years. A rally in gold and commodities would have the same effect in reverse, happy days are here again even though they are not.

  4. Yes we’ve had a range contraction in many instruments for some time and the number of them is growing. If US stocks are joining them we are in a top building process. If traders don’t train themselves to notice range contraction they will be betting on direction while there is less and less direction, for example how many experts were predicting Gold to go somewhere when Gold was stuck in a range. Many still want to see EUR/USD breaking out, or USD/JPY to continue, or commodities to trend. They all will in due time, but not before that.
    Market manipulation….Thomas D Cook, who was trading in the 80′, doesn’t stop talking about FED computers:)
    http://www.markdcook.com/
    Also yesterday (8 Oct) was supposed to be a nice trend day, and although it ended at the lows, it traded 70 points higher just 1 hour before close. The recipe for success yesterday was to short the spikes up of 30 DJIA points on the way down, if we remove these spikes from the chart, it looks like a nice trend day. I am not moaning about FED computers, I just try to trade those markets.
    Market can be manipulated, but cannot be made. Bankers had to ask J. Livermore to stop shorting, otherwise it could derail the US economy. On the other hand Livermore didn’t want to short anymore, he wanted the economy to be doing well and the market to stay alive. Also Soros didn’t break the BOE. GBP was ripe for weakness, Soros went with the flow, and BOE was not able to withstand the market forces.
    Gold may be trading lower before end of 2013. I am short Gold from higher levels. But a bottom building is also likely, if Gold joins the range contraction of many other markets.
    I agree with many voices from previous discussion that win/loss ratio doesn’t matter. Of course a good ratio means we have got good entries, good signals. But there is still plenty of strategies which have many attempts with shallow losses and big wins – it still pays to have 3 shallow losses if every fourth entry is a big win able to offset 7 losses. Linda Raschke said – give me a random entry and I will make 70% wins out of them. ‘but what matters if how much you lose when you get whacked’.

  5. John,

    Are you waiting for oversold NYMO reading to get long. I am thinking go long around Sp500 1620. Not sure how long it will last.

    I have some shorts for last last 6 month in rydex funds which i am not touching yet.

    What will make you go long and how long will you stay long.

    Bill

  6. Could the market be crashing? Very unlikely, but I always like to keep track of the eclipse possibility. A large number of crashes are associated with the solar/lunar eclipse pairs that occur twice a year. The second pair for 2013 is an Oct 18 lunar eclipse and Nov 3 solar one. The general rule is a crash begins from a secondary top that is a full moon within 10 days of a solar eclipe. The crash also frequently has the form of the high occurs on a new moon and the market has a sharp correction (10%) to the next new moon. A weak rally ensues to the next full moon, and then the crash really begins. Usually toward or from the eclipses. The general rule cannot occur this time. The new moon to new moon appeared to be happening during the Aug drop but the rally to the new moon went to a new high with the Autumnal equinox. Some coincidences with 1929 are keeping me interested. The 1929 crash low was near the Nov 1 solar eclipse. This years solar eclipse, Nov 3. The lunar eclise of 10-18 is the same as the full moon 10-18 of the partial recovery high before the crash in 1929. The solar eclipse came first in 1929. This year the solar comes after the lunar. I really know virtually nothing about astrology, but find this stuff fasinating.

  7. Have added the updated short term geomagnetic-lunar model versus the SP500 at the end of the post above. The storm of the last couple of days has sharpened the downtrend into 19 Oct, but has not much altered the overall flat shaping of the model in place since August.

    1. Risk/Reward returns on this rally is risky at best, and mostly based on short-term optimism. In my opinion, risk is too high at these levels. The real show will begin once the FED starts to taper, that’s where we will witness ‘the emperor without clothes’, but it is unknown what crisis may lie ahead. European countries are starting to turn around, and US will slug along for the next few years. The interesting story will probably from come from EM and Japan. Advanced economies of the world are well-capitalized to withstand another liquidity crisis, should there be one (highly unlikely). So, unless a crisis we have not discussed in the last two years happen, economies will sideway for the next few years until it takes off again. Just my takes anyways.

  8. We’ve had 14 days is descending channel, roughly the same as in previous channel, besides now DJIA futures trade over 130 from low, all previous 130 point retracements were followed by more downside, so we may stop here for a while, but I’d prefer the indexes to range here. I’d like to see a whipsaw volatility before the channel changes direction, like on 6th and 18th of September, or 21st of August. When is the next ’round’ number? 18th of October, Friday, very nice:)
    Facebook got hit with high volume, distribution has started.

      1. Cry-baby talk…I have nothing against buying anything only because it rises. Many fund managers just do this. To be honest I saw FB rally before it happened, I commented 1 year ago under N. Walayat that I see no immediate FB potential and more likely FB would hit 30 than 10 before end of 2012. This comment is still on the net, posted among many voices of traders and investors far more wise than me, saying that the FB stock will be dumped on public and that it is its only purpose. I saw buying coming and I do not know fore sure if it was inside buying or managed money manipulation. FB had plenty buy of signals on various time frames, I liked those gaps that entrapped remaining shorts. But do I really have to buy everything that rises, otherwise I am a cry baby? Come on. I bought DJIA twice yesterday, I don’t argue with the price. Beautiful day yesterday.
        ps
        But it’s lift up and stairs down, I mean stocks rise fast, and fall for many days, is it to dumping stocks before move up or attracting shorts before move up? I’d like to know.

  9. Well, I think it was a manipulated rally, to make happy those who were loaded from IPO. It is also likely that FB has some aces up their sleeves, and that it was a genuine inside buying. But I think it is less likely.

      1. Manipulation talk = cry baby talk. If someone is buying it is going up. Why are you projecting your feelings into it? Just be in the moment with the flow. Our feelings or ideas about casualty are unimportant. Feel bad about it – go into politics and change the world =)

      1. I trained with a really successful trader (old guy) and he used to say that manipulation talk is just an excuse traders have instead of talking responsibility of their own actions. Focus on the price action and your strategy. Everything is manipulated. =)

      2. This applies to all kinds of talk. I trade the price, only. Once I made an experiment, I wrote down each day what I expect during the session. I realized that I expect what I like most, instead of expecting what is most probable. So now whatever I think I just put aside and rely on the price, tick by tick.
        I think that actually ‘cry baby’ is a compliment. 90% of market victims are daredevil muscle men 🙂

  10. While there does tend to a usual signature with the Steve Puetz crash window, the current set-up is still valid as far as I believe according to the work I have seen.

    1. Dan: Danny did a study on solar eclipses (I also did) that encompass Puetz so only certain eclipse cycles are important and that is not on the map anytime soon. But if you have other data please share as I also find that fascinating. =)

      1. Hi Robert, I know Chris Carolan found something interesting that the pertinent eclipses have a gamma of zero, off the top of my head. I am currently comparing all the charts that Steve sent through to me and I will provide a summary of what I have learned.

  11. Hi Desp906
    Thats a great experiment.Write down what you expect and what actually happens.
    I will start on Monday
    Thanks
    bob

  12. I think record keeping is important and everybody should have a way to record observations. Drawing chart by hand, taking screenshots of each trade for further analysis, recording trades with initial sl and tp, when sl was moved to break even, was there a time stop loss, what kind of day was it, what happened after, was the entry a mistake, if so why I made it, is the system too complicated to follow or the market was unprecedented?
    So even if I expect what is the most probable (my perception is at its clearest) it’s still probabilities. Recognizing conditions straight away with no dealing with the baggage -I thought that, I didn’t expect this- is a powerful weapon. In the end the market is STUPID and it can do whatever it wants. Most people will talk about stupidity, laugh at it, but how many can imitate it? No, its below their level…what if others see…
    There was a guy, whose name I don’t remember, managing a fund. When his clients saw that he entered and exited a stock a few times to make sure it’s the right position, they were a bit shocked and asked him ‘ we assumed that you were doing some research’. I mean, difficult equals a level, so we deal with it using our highest level, our intellect. But what if a cow has no logic and its behavioral patterns are simply following the line of least resistance? here’s grass, I will graze.

  13. SPX of 1769 is top. S/B between 18th and EOM at latest.
    (if) correct a 10 percent correction in November followed by another assault to new highs in December. Still believe 2016 will be the final top, but for now no solid evidence.

    Conspiracy theories and manipulation is silly. Earnings and fundamentals in the end drive markets. Fact: Gross margin for corporation was the best ever recorded. Earnings do justify price. No need to explain why earnings are going higher. That’s not the point. Understand this and follow the trail. Fundamentals going forward looks dicey. We should have an earnings driven drop soon followed by yet another economic revamp before the final move comes. How long? Placve your bets. mine so far is 2016, but can change on a dime.

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