Timing Major Market Peaks

Starting on the smallest timescale, and working up to the largest.

1. Timing within the month

Lunar phasing influences human sentiment. It produces fortnightly oscillation in the stock market: positivity/optimism around the new moon and negativity/pessimism around the full moon. The cumulative influence of this can be seen in stock market returns over the last 20 years:

LE1

In keeping with this, we find that major market peaks typically occur close to new moons, around maximum optimism/positivity:

NewMoonMajorPeaksThis adds to the case for a peak having occurred in equities on 31 Dec 2013 (Dow and Nikkei, plus SP500 double top with 15 Jan), associated with the Jan 1st new moon. If that proves to be false and equities break higher, then a future new moon (next one Jan 30th) may produce the timing of the major peak.

2. Timing within the year

Geomagnetism influences human sentiment, with higher geomagnetic disturbance associated with negativity/pessimism. The inverted seasonality of geomagnetism correlates closely with stock market seasonality, and typically we find that major market peaks occur close to the peak in both, around the turn of the year:

13jan50

13jan11Gold made its secular peak on 21 Jan 1980.

Again, this adds weight to equities having peaked 31 Dec 2013, but if that proves false, then we might expect a final peak still to be at hand, in January, before the seasonal model turns down.

3. Timing within the decade

Solar maxima occur roughly every 11 years and produce human excitement, which translates as protest, war, and speculative excesses in the markets. Major market peaks typically occur at the solar maximum, close to the smoothed peak and on a monthly spike in sunspots.

SolarMaximaParabolicPeaksWe can measure speculative excesses in terms of market valuations, sentiment readings, leverage and technical indicators and we see a cluster of these in US equities currently. Solar forecasts, solar pole flips and sunspot counts collectively suggest the smoothed maximum and monthly sunspot spike may be occurring Dec 2013 into Jan 2014, which in association with those speculative excess readings, again adds to weight to a possible peak in the Dow, SP500 and Nikkei.

4. Timing within the century

Demographics drive secular bull and bear markets, as swells in investor or disinvestor age groups produce periods of upward or downward demand for equities. Japan’s secular stocks bull ran through 4 solar cycles due to a long positive demographic trend from the late 1940s to around 1990. Japan’s middle-to-old, middle-to-young and net investor ratios all peaked in the late 1980s, and accordingly we saw Japanese equities terminate with a speculative excess at the 1989 solar maximum, and thereafter move into a secular bear in line with demographic downtrends.

US demographic measures for equities demand peaked around 1965. The real SP500 peaked November 1968, terminating with the solar maximum of November 1968. Thereafter US equities entered a secular bear market, whilst gold, as the anti-equities or anti-demographic asset, entered a secular bull market. Demographics and equities bottomed around 1980, whilst gold made its secular speculative peak, all timed with the Dec 1979 solar maximum.

X1

US demographic ratios were collectively positive from 1980 to 2000, enabling a secular bull market in equities lasting 2 solar cycles through the speculative finale of March 2000, which was again a solar maximum. Gold endured a secular bear market through those two decades, bottoming out as demographics turned down around 2000, and entering a secular bull market.

Looking forward we see a slight divergence in the 3 charted demographic measures: the middle-to-young ratio bottoms out around 2015 but the middle-to-old and net investor ratios not until around 2025 (shown boxed above). When we draw in collective downward demographic trends for Europe and China, the greater likelihood is of a secular bear in US equities (and a secular bull in gold) lasting through to around 2025, rather than ending now. Solar cycle 25 is predicted to peak around 2023-2025, which would provide the timing for a speculation secular peak in gold.

There is a correlation between solar cycles and birth rate, with evidence of an 11 yearly peak in births. There is also evidence of a link between economic prosperity and birth rate, whereby births decline in recessions and bear markets and increase in the good times. Combining the two, we have the framework for alternating positive and negative demographic swells which peak or trough around solar maxima, and hence we have historically reliably seen demographic trends and associated speculative asset bulls/bears peak and terminate around sunspot peaks.

Therefore, the secular bear in US equities that began in 2000 is likely to continue through to around 2025, and the secular bull in gold that began in 2000 is likely to continue to and peak around 2025. In support of this we see current historic overvaluations in US equities that argue for further reset in stocks ahead, and a lack of speculative mania for gold at the current solar maximum.

17ja1 17ja2Both charts above model the historic trends in US demographics and the terminations at solar maxima, and the projections forward are the extensions of these phenomena. The ‘mean reversion’ common to to them both reflects the transience of demographics (a young dependents swell headwind will become a middle-age swell tailwind which will become an old-age swell headwind) and the double-excess produced by solar maxima (demographics stretch demand by population, solar maxima stretch demand per capita) before sunspots cycle down again. The biggest mania of all-time is clear to see on that second chart: the dot.com boom. Not only does mean reversion subsequent to that mania have some way to go (a wash out to -50%) but demographics support this occurring.

To summarise all the above, and make it useful looking forward, we can time major asset peaks by probability (there are no dead certs, and exceptions occur). Any major asset peak will probably occur close to a new moon, typically around the turn of the year, and normally at a solar maximum. Demographics guide at which solar maximum a secular asset peak will likely occur and whether a solar maximum should deliver a secular or cyclical speculative excess.

Forecasts for gold and equities

We are currently at the likely solar maximum for solar cycle 24, at the turn of 2013 into 2014. Demographics are supportive of a secular bear in equities (that began in 2000) continuing through to the next solar maximum circa 2025, and similarly a secular bull in gold (2000-2025). The speculative excess in equities that we are seeing in association with SC24 maximum should be a cyclical peak. The timing of that cyclical peak in stocks has good odds of being around the turn of the year (2013 into 2014) and close to a new moon. That makes a top close to Jan 1st 2014 a contender, and failing that one near Jan 30th 2014 (the next new moon). Again, these are just probabilities, but if we take a different angle and look at indicators such as II sentiment, put/call ratio, skew, deviation above MA, yield-tightening ROC and margin debt, then we have a case for equities to begin to fall ‘imminently’, regardless of solar maxima and lunar phasing. Combining both, the case becomes more compelling for a top here.

Gold’s secular bull began in 2000, and like all secular bulls, it has been in a strong dominant uptrend punctuated by occasional cyclical bears or corrections. Below we see the US equities secular bull progression 1980-2000 contrasted with gold’s secular bear in that period (cyclical bulls and bears within an overall downtrend).

17ja3Source: Stockcharts

Gold’s secular bull of 2000-2025 should be a strong dominant uptrend like stocks 1980-2000, or like an extended version of gold’s last secular bull of the 1970s.

17ja4The cyclical bear of Dec 1974 to Aug 1976 occurred as the Dow rallied from a Dec 1974 low to a Sept 21 1976 top, with gold’s secular bull momentum resuming as equities topped out. We could therefore expect something similar to be occurring now, and this is supported in the oversold, overbearish extremes reached in gold and miners and the technical basing that appears to be currently taking place.

A threat to bullish resumption in gold is the current excess leverage we see in evidence in margin debt, net investor credit and Rydex leverage. If sharp falls erupt in equities then a period of forced redemptions could mean blanket selling of assets, as occurred in Autumn 1929 and Summer-Autumn 2008. Gold /miners escaped neither, in short-lived but sharp pullbacks. In THIS post I compared the topping process analogies of 1929, 1987 and Nikkei 1989 to the Dow today, and based on that we might expect sharp falls to erupt as of mid-February. There is a history of steep falls occurring at the seasonal geomagnetism peaks of around March/April and October, and occurring on Mondays once investors have had a weekend to mull over doubts. So by probability we might this time look to the particular potential of Mondays in the period March-April 2014 for heavy falls to erupt. Potentially then, we could see gold and miners rally until then, but be dragged back during such heavy stocks selling, thereafter resuming the secular gold bull in earnest.

Equities should now enter a new cyclical bear market, and continue to alternate cyclical bulls and bears within a secular stocks bear through to around 2025. By demographics (and as is becoming evident in economic data) this should be under deflationary rather than inflationary conditions, and this makes an important difference to nominal prices. The path of US equities for the next 10 years should look similar to the 1990s to early 200s Nikkei or the real inflation-adjusted 1970s SP500, with lower highs and lower lows:

17ja5Source: SeekingAlpha

Using Russell Napier’s maths (taking valuations back to historic washout levels), then we have a target of around 3500 on the Dow by my target of around 2025. Again drawing on history, odds are we get there in a couple of cyclical bull-bear oscillations, and hence something like this:

17ja6It is an initially shocking chart, but it is in keeping with deflationary demographic projections and valuations washout. Plus, this has already happened before: to the Nikkei, under the same twin circumstances.

Expecting the Dow to be sub 4000 by 2025, and gold to be making a parabolic solar-max finale to a strong secular bull, the Dow-gold ratio should bottom beneath 0.5, potentially even beneath 0.1. But the one factor that I have not mentioned so far is central bank intervention.

It is certain that a tipping over into deflationary recession and equities bear will draw further response from central banks. If equities start to decline for the next couple of months but in a measured way and economic data disappoints (as predicted by certain leading indicators) then I would expect the Fed to stop tapering QE and wait-and-see, and otherwise little change. If equities then start to accelerate declines and economic troubles escalate and we enter a dangerous feedback looping, then we should expect the Fed, and other central banks, to up the ante and go more unorthodox. Quite what that will entail remains to be seen, but drawing on history, recent and past, this could mean imposing restrictions on shorting shares, preventing capital from leaving the country, ‘strong-arming’ into treasuries, and more direct, targeted inflationary tactics. There is of course the potential for increased nationalism and for hostilities between certain nations to increase (USA-China, China-Japan) as internal problems escalate.

I don’t want to speculate too far ahead, but I see major lasting opportunities at hand in short equities and long gold, tempered by realism over what central banks will do should my projections come to pass. Monetising debt whilst tipping over into deflation under unprecedented collective demographic downtrends which should mean a further decade of secular stocks bear and global economic weakness is a very bleak outlook. As a trader, I think the biggest gains are potentially to be made at the front-end of that, in case the rules get changed. Speculators making money out of an economic crisis are an easy target. It very much depends on how things come to pass, whether we are nursed through another ‘lost decade’ or whether things are about to become acute, under a global deflationary recession, a debt-monetisation end-game or a de-railing and bubble-bursting of China’s economy.

In the near term, I continue to look for clues in the markets for the equities/gold, bull/bear switch. I am long gold, short equities, and looking to add to both on further confirmations of reversals in fortunes.

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52 thoughts on “Timing Major Market Peaks

  1. John, thank you very much for your excellent articles.

    Yesterday the German DAX stood at 1.14 of his 200 ma for the second day in a row. According to index indicators there were only two periods with several subsequent quotes that high above the 200 ma over the last three years. One began on February 08 2011 and ended February 21. The other lasted from 03-15-2012 to 03-19-2012. Both were topping periods.

    If following the February 2011 guide the current topping period could stretch until January 28th.

  2. One possible reason markets may colapse as per the 1929 analog is next months debt ceiling deadline of 7th Feb. The US treasury have admitted they dont believe they have enough fund to fulfill commitments after the beginning of March. Unlike last time, no ones talking about it this time.

    1. Thank you.

      Also – China’s repo rate was rising again today – analysts expecting another potential cash crunch heading into Chinese new year. So two macro concerns to keep an eye on.

      1. The Shibor spike in June last year was enough to cause markets to tumble for a few weeks, so another spike could very easily cause mayhem.

  3. HI John.

    Thanks for the great overview!

    One side question in terms of how these influences effect each other – do you know of any evidence that high sunspots may interfere with the efficacy of the lunar effect on asset prices?

    Best wishes

    Rob

    1. Good question. I am alluding to the potency of them converging: market peaks occurring at the seasonal geomag low near a new moon at the solar max. When they diverge they must compete, at least to some degree. But I haven’t studied it.

  4. Thanks for the great work again.

    Assuming we get some sort of a sharp decline into March/April. It would appear from some of your seasonality work as well as the Bradley chart for ’14 that we could see a retracement high near the start of Q2 earnings in July? And then back down in late summer/fall?

    One scenario is that we get some kind of macro economic shock that causes a sharp decline. After a bounce back up, we see a more pronounced top when earnings begin to disappoint in potentially in July.

    Could allow for some nice divergences to build.

    Thanks.

  5. John, a year ago you were drawing something like diamond pattern and new secular bull market… What changed your mind? Demographics?

    1. All my demographic research of mid-2013 played a key part. Then seeing events unfolding into this solar max further refined my thinking.

      Demographics don’t support a new secular bull – the opposite. Yet if we ignore demographics and look at CAPE, stock market to GDP, margin debt, sentiment and other indicators now they are all positioned for a new bear market.

  6. Thanks, John. I only expect a similar pattern to Nikkei´90s to european markets, that´s truth, but disagree in US indices.

    I ´ve studied Dow Jones for a long time, and projetions /past centuries and the pattern is similar the whole time> +-300 years Gigantic cycle for a change of economic system, the last one topped in 1720 and 90-100 years cycle, 3 times in each Big cycle, 1835-1929 and I bet 2023+-, to finish with this Capitalism system.

    Each 90 y-cycle contains several 17-years cycle+-, like 1906-23, 1932-50 1949-66 1966-83 1983-2000 and current 2000-2017?

    This is the cause-reason, I do not think we are yet in a Nikkei structure, we must wait, we must before a retracement like s&p80 or Dow 1919, 1st case 30-35% drop, and 2nd 40-50%, and from this point we should see a large spike similar to 1923-29, Eiffel model.

    Only then, must see a sell-off like 1720 or 1929, in two big modules, and see the bottom in 2026+-.

    But this bottom would last many years, with rebounds, but will be a depressed period and the economy must change to result a new era, similar to 1720 and following years.

    In 1835 nearly hit the prior highs od 1720!!!

    1st was Japan.
    2condly, Europe, since 2000 and I expect US after this 17-years cycle concludes.

    @apanalis

    1. Great post…. the scenario looks very probable. Bear markets last roughly 17 years. The bankers will try to save the system again, but it is not sustainable.
      The problem I think is no capitalism rather the luck of it – to big to fail, it should not exist such think. The current system will fail and we should see qualitative changes in society… and this can last a decade even more

      1. Guys, secular bulls and bears are demographic, and solar maxima drive the speculative finales in them. Explain a 40 year Nikkei bull or a 2 decade Nikkei bear. Explain a 12 year commodities bull from 1968 to 1980. Explain a Dow/SP500 bull from 1982-2000. I can explain them all with demographic trends and solar maxima. A 17 year cycle is too simplistic.

  7. Demographic projections would seem to assume reasonably stable environments. It seems that CO2 generation is the best defense to delay glaciation (next ice age). Here there is also the prediction of a triggering magnetic reversal
    http://www.iceagenow.com/Magnetic_Reversal_Chart.htm
    But I suppose such event may well encourage overdue super-volcanic desolation, whereupon all bets would be off.

  8. the index etf’s I track as a group were at or near important inflection points
    at today’s lows…. similar to last monday’s low…the first day of trading next week is critical,,,,if this area holds, i will hold my nose and trade long once again towards my upside target…. if price breaks at least to 1815spx i will look forward to weeks if not months of short selling..my apologies, but the technicals favor the upside… i will be VERY happy if it breaks from here… regardless, there is only about 6% max left on upside if up is the direction…

    1. Thanks. I’m making no assumptions, watching and waiting, but I see flows into treasuries, gold and gold miners and I see Skew at an extreme 139 and record Vix calls: I see promise for the downside to unfold.

    2. As a trader who is primarily a short seller,nothing will make me happier than to have my work in snych with John’s.Under the cover of recent price action in the indexes,many stocks have had their initial break.what i need to get an across the board sell is for those stocks to have their initial retrace.while at the same time the stocks that remain strong reach long term upside targets..As I said before,the recent high is one of two price levels i had for swing high… but my work will not confirm this high unless 1814spx is taken out.

  9. Rhodium broke out of 5 year downtrend. My analysis shows this will be the largest gainer of the PMs in the next leg up in PM bull.

    Antonio, I’ve also done a ton on long term cycle work and I think you nailed it. This 17 year cycle will complete around 2017 with a significant correction between now and then in stocks and the PM bull finishing at new highs. A new stock bull market will start and go parabolic (like 1923 to 1929 bull you mentioned) with the potential to collapse prematurely into a depression because of the demographic trends that John notes. A 25 year gold bull is unlikely, a 25 year flat line stock bear is unlikely, the bond bull market extending to 2025 for a total of 45 year bull is unlikely. Yep indeed, I like you idea 17 year cycle (gold, stocks, bonds all changing direction at same time) , then stock spike for few years like 23-29, then continuation of bear market demographic trend in stocks.

  10. John, I’m struggling with the Gold Bull, Bond Bull and Stock Bear all continuing to 2025 then all reversing direction like it had in 1980, 1950, 1920, etc. Not much history to support that type of 25 year move..other than demographics. I’m considering an alternate 17 year scenario above that Antonio eluded too.

  11. Also John, Please note that overall commodities peak a few years after the 1916 solar cycle peak in 1920 and few years after 1946 solar peak in 1950…with the PMs being late and strong performers in all past cycles. Still hope for 2017, but the PM bull will have to restart very soon.

    1. Justin, I’ve moved on through my research. I’ve gone off the general idea of cycles other than that for which I see evidence and reason (namely lunar and solar related). You say there is not much history other than demographic – but I would argue (and have done in multiple posts) the importance of demographics. Like I said in a comment above, I can explain and reason for different ‘secular’ bulls and bears in equities and gold through demographics and solar maxes. I see a 17 year cycle as a too simplistic and not fitting if you look at the bigger picture. However, we are talking long term here, evidence will come to light piece by piece, so let’s see.

      I am still watching broader commodities to see if they can start to rally here should equities turn down. The dollar’s direction is also unclear and that would normally be a factor. Maybe they sink under deflationary pressures, maybe they can rally as late cyclicals, I watch and wait.

  12. John,
    The title of your March 20, 2012 post was “Dow at 260,000 by 2032″. You end the post by stating the following:
    ” In summary, by extrapolating trends in (i) secular stocks bulls durations and magnitudes, (ii) compound returns, (iii) inflation, (iv) technological evolution and (v) the Dow-Gold ratio, I propose that the Dow index at 260,000 by 2032 – although initially appearing fanciful – is instead a realistic target.”

    Now, you are stating the following:
    “Using Russell Napier’s maths (taking valuations back to historic washout levels), then we have a target of around 3500 on the Dow by my target of around 2025.”

    Is there a contradiction between the two posts?

    Jack

    1. Jack, hopefully it’s clear that my thinking and research evolves over time. You are quoting a post from almost 2 years ago. Demographics was a key missing piece at that point. Best to focus on my recent posts. However, here’s the thing: it is still possible. Picture a battle with deflation for the next decade and even more gung-ho inflationary / money-printing tactics failing whilst demographics are downward, but then money velocity, lending and spending all reversing course as demographics bottom out – the threat would be we move from deflation to runaway inflation.

  13. Most analysts look at the long term Dow chart and divide it up into secular bulls and bears. That gives the impression that they average a certain duration and alternate. That was my starting point in my early days of trading.

    Next, I understood the link between solar cycles and secular bulls/bears, and that refined my view to secular commodities bulls peaking every 3rd solar max and stocks likewise but alternating with commodities.

    But then I understood the link between demographics, solar cycles and secular bulls/bears and that explains why e.g. Nikkei had a 4 decade secular bull, the Nikkei had a secular bear whilst US equities went up in the 1990s, gold did not make a secular peak at this solar max, etc.

    And that bring me up to date. The historic patterns in secular stocks and commodtiies bulls and bears are patterns to some degree – in that they peak out at solar maxes and demographics tie in with solar maxes due to the birth rate link. But ideas that they average a certain number of years or cycle every certain number of solar maxes were too simplistic. If we look at demographic trends and solar maxima together we can explain the anomalies that don’t fit the aforementioned, and hence my projections forward.

  14. I was recently asked the question why the 28 January was important.
    If we refer back to both the 10 October 2007 high and the 6 March 2009 low.
    10/10/2007 = 11/9
    06/03/2009 = 9/11
    by adding the digits. 28 January 2014 will = 28+1 = 11/7. 7 has the same vibration as 11. It is no coincidence that 11/11 would be an important date. If you study for yourself important dates you ill begin to see similar vibrations reveal themselves

    Monday could be down however expecting higher prices from here
    http://algorithmicswingtrader.wordpress.com/

  15. Hi John:

    I’ll add my thanks to all of the others for the work you do. Do you follow Harry Dent much? You both seem to be on the same page. After having tried so many other methodologies, I’m finding demographics and repeating fractals (just warming up to them) to be the best predictors.

    These guys seem to have a good handle on the repeating fractals, http://www.marketanthropology.com/

    I try to be open to all approaches and happened to look at work done by an Astrological advisor. I was surprised at a success rate that exceeded most “conventional” TA. After looking closer, I think they are inadvertently picking up on solar/lunar cycles. It just gets lost in the mysticism. My thinking that solar/lunar cycles was really what I was looking for, brought me here. Throw in my existing bias supporting the demographics, and your site was made to order.

    As for the pros and cons of a commodity spike like 2008, there is a lot of liquidity that is going to be looking for a home if stocks/bonds drop.

    Flip side, what is the price of something that nobody can afford? What is the value of currency nobody wants or needs? This could be a wild ride.

    In response to questions about good short/contrary/safe havens, BEARX was good to me 2007-2009, along with SDS. The fund is pricey to get in and hold. SDS is manic.

    I’m in both along with gold funds at this point. I think the party is over (yes some poss. upside), but going into this next decline, the credit cards are maxed out, the second mortgages taken, the old debts still there, and the job lost or at risk. Life support for the “little man” that credit provided before, is no longer there. Hence, what is the price of something that nobody can afford?

    Thank you again for your detailed analysis.

  16. P&F software triggers bull alert on gold miners…
    (coincident with JPM analysts buy recommendations)
    http://tinyurl.com/osxl42t
    (JPM has accumulated a horde of long gold contracts)
    Still a forex sensitive thing for me, but potentially ominous for short-term traders.
    And the gold P&F not yet returned to bull mode from recent flip flop.
    Mmmm…

  17. The K-Winter alignment makes sense. Think after next K-Spring for US equities and gold, but only because we start to adopt a universal basket of currencies and hegemony ends. Gold will rise then crash. Governments will forgive debts owed to each other else bankruptcy and starvation and war. All populations shrinking will cause this. There will be a lot of baby boomers here in US working into their 80’s because they didn’t save enough and they love to consume. Other parts of world are culturally different. Medicine technology will ensure not prevent this reality. Robotics, computers like Watson, and new Mfg. technologies will ensure your deflating in near future versus demographics. Real estate will crash here in the US in the late 2040’s as folks look to unload homes because there are no net buyers, only sellers to those who inherit property. By then robots will be sharing intelligence amongst themselves and the human brain will be understood and capable of external manipulation. There will be a shift from jobs in factories and offices to arts, science, and humanities. Exploration of outer space will be a key driver of the next K-Spring. China will build its army, but not invade anywhere. Space is a different story. Corporations will control every country and wars will be conducted by them, not governments. The UN will play a larger role and corruption will be rampant but lucrative. As alternative power technologies take over, its only time before Google is the next General Electric. The 21st century will see more prolific change then the 20th century. It will smaller, and farther away and those who can see the future will be well rewarded as investors. Think shorting through 2018 makes sense, but not after. By the way, someone just invented a device to let humans breathe underwater with artificial gills. No air tanks for scuba diving required. Google announced diabetic monitoring with contact lenses. Less people will be required, but the deflation won’t be damaging because the world will be run by more and more millennials (our kids) and they’ll just hit the reset button.

  18. John, as you are aware; the inherent weakness of cycle work involves the concept of time using measurements of fixed periodicity whereas the work you reference has an input of non-fixed periodicity. One can make a case that planetary influences are at work (as in the angular momentum theory); which then begs the question of further investigation and analysis into both astronomy; and it’s cousin, financial astrology.

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