Update

Stock indices rose into the full moon, making for a third consecutive lunar inversion. Here is the updated lunar-geomagnetic model versus the SP500:

21oct20131Forecast geomagnetism is fairly benign and we are now into lunar positive fortnight, however the three back-to-back inversions leave me less confident as to the direction of the stock market. Normal service may resume here (i.e. a two week uptrend) but the triple inversion maybe has some significance.

Breadth broke out, as in Advance-Declines:

21oct20132Source: Stockcharts

This development casts doubt on a stock market topping process. However, other developments have added weight to my criteria list for a top (last post), namely treasury yields fell again, commodities indices edged up again, ECRI leading indicator growth fell further, narrow money leading indicators for the G7 have worsened, Citigroup economic surprises for the major nations have all turned into downtrends, bar China which has turned flat. Here are the CCI and CRY commodity indices:

21oct20133

 

Source: Bloomberg

Still tentative uptrends short of momentum, still too early to say if they are going to take off. Crude oil has flattened out but is still in a downtrend for now, whilst gold broke up beyond downsloping resistance on Thursday and held the break on Friday:

21oct20134

Follow through is still required though, so also tentative but more promising.

The result is I am watching the markets at the start of this week: can stocks rally and the SP500 break upwards out of its wedge on good breadth, or is another pullback going to come to pass (earnings revenues disappointing so far but the season only still getting under way); can commodities (particularly gold) rally and gain momentum; can the US dollar break beneath another support level at 79 (expectation has switched again to no QE taper in the near term)?

For a more definitive judgement on whether equities are topping cyclically we need more time, and more developments. On balance I believe we are in the early part of a topping process, pending further evidence. Next we would require a deeper correction ahead to produce a lower low, followed by a rally back to the highs whilst leading indicators fall. Rising commodities would normally play a role too, and if they are in a new uptrend, they need more time to rally some way higher. But all this could take weeks or months to fully develop.

I am also watching the sunspot count as the sun has woken up again. If the solar max is still ahead then we ought to see a sustained period of higher solar activity.

21oct20135

 

 

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17 thoughts on “Update

  1. Hi John, just came across your website today…An ex-CEO of one of the big banks said in a trader interview book that lunar cycles were part of his thinking…he observed that market reversals tend to come around the fool moon. That got me on this track of research last night, which led me to your site. interesting stuff, keep up the good work.

  2. Gold doesn’t want to fall. This channel down was quite sloppy. AUD/USD – well correlated to Gold – is confidently marching upwards (gold miners are technically still in a downtrend). The current Gold channel breakout may be a potential buy signal for those impatiently waiting to jump into his market.
    S&P’s current move is just 8 days old, previous one last 9 days, but most of the up moves in 2013 last easily 20 days. On the other hand, this move was the fastest in 2013. So potentially this may be the beginning of a solid move, which would look like parabolic on higher time frame, and inevitable correction afterwards. Many think that this would be the end of the bull, but I am just asking myself does it have to be? These are unprecedented times. I am not saying that hyperinflation is coming and the stock market would be a hedge (to be honest, in hyperinflation even the toilet paper goes up faster than stocks). But at some point all these monies now risk averse will be pushed out of fixed income, in search for yield or running from risk of default. The market may find support even in a recession.
    Sometimes I think that trading should be a perfect job for women. If it’s the case, why most of traders are male? Men have inherent weaknesses : ego and abstract mind. Ego creates euphoria after big wins, and aggression/depression after big ‘undeserved’ losses. Also men want to fit the market into their theories or patterns, they tend not to notice when the market doesn’t want to fit. If they finally admit mistake, they find other theories. While women naturally should scale out after loss, and remain realistic after big wins. Also women prefer to be led and are reactive, receptive of impulses, so they should be good tape readers, able to notice genuinely working patterns.
    Unfortunately, trading is also about hard work, ambition, resilience and planning, taking risks and nonconformism – this is what defines men mentally and biologically. Definitely I am trying to arrive at a conclusion, out of boredom, this is not a trading day for me. Volatility makes me happy.

  3. Hi Chngster, if you don’t mind me asking what was the name of the trading book? The internal backdrop for mining stocks remains quite weak at present.

    1. Ha. It’s “Inside the House of Money” by drobney. Mind you, it was a very brief throwaway line ….but the fact of its admission by the huge institutional perked me up. The rest of the book is great, and focuses on interviews with global macro traders from all walks.

  4. The market is suppose to top out on good news. So, how does one interpret today’s good news. Ie. Since the jobs report was weak, that is good news because QE will continue. Basically bad news (weak jobs) is good news (more QE) WHICH IS BAD NEWS (more QE) which is good news (rising stk and RE mkt ). Credit cycle wise, EZ money (QE ) is good for assets in a weak economy has really been operative. Will it ever be discounted or will the massive creation of more debt on top of too much debt cause a credit collapse (deflationary), or will they exponentially increase debt until there is a hyperinflationary blow off and collapse. Or is this 1953 and a wonderful low inflation, declining % debt levels, and strong growth ahead — the 60 yr cycle.

  5. As some of you may be aware, the commodity rally is starting to warm up. Reversal trends of Aussie and Kiwi, Cdn dollars is showing promising sign of rally mode ahead if this trends can hold up for the next 2 weeks. But crude oil is tentative and is still on a watch list.

  6. John. As to the direction to the market. What is statistically most probable? Is there any significance of reversions? If not then do not force your brain for more input. KISS = Keep It Simple and Stupid =)

      1. I think statistics would say that whatever the market’s been doing recently will like continue. In other words, the trend is likely to continue. Kinda like the weather: You can do almost as good as the national weather service by forecasting that the weather today will be like it was yesterday.

  7. Hi John
    Quite strong sunspots… here are my models updated: The major wobble and tidal cycles, both having a top around Sept-Oct 2013

    Here is looking at three sunspot cycles with similar phase in the wobble cycle

    We had a quite weak tidal peak in September, but looks like the wobble/power-cycle had enough energy to produce a quite strong sunspot peak.

    The next tidal peak in january is very strong, but there the power cycle has begun to fall significantly. So unclear how strong that sunspot peak will be, but from there on the sunspot cycle should be clearly dying.

    As for the markets, this 6 month cycle has morphed from bearish into neutral/bullish. Meaning that there should be a “bullish” correction in November, and a higher top in the winter.

    JAn 🙂

      1. yes… but sunspot numbers are not the best indicator for the sunspot cycle – the solar flux would probably be the best one.
        Lets see if it can break the downtrend here next months 🙂

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