Fake Out Top

By my work, that completes the cyclical stocks bull market peak.

The solar maximum is looking likely to have run from Dec 2013 through to April 2014 (smoothed peak ~Dec, monthly peak ~February, daily peak ~April). The real inflation-adjusted Dow peak stands at 31 Dec, along with the Nikkei, at the new moon. Various cross-asset measures also inverted at that turn-of-the-year, which has been historically potent, as the inverted geomagnetism peak. The Nasdaq and Russell 2000 peaks were at the turn of Feb-Mar, also at the new moon. The nominal SP500 and Dow peaked-to-date at the full moon of two days ago, making for an inversion.

If the solar maximum, inverted geomagnetism peak, and lunar phase extremeties rule the markets, then all four indices are now likely in bear markets, and whilst we won’t know that for sure for some time, we will know soon enough if those peaks are taken out.

It is the cross-referencing of the timing measures (solar max, geomag, lunar phase, DeMark) with the technical and fundamental indicators (valuations, sentiment, equity allocations, leverage, divergences, cross-asset performance, bull market measures, demographics) that makes this so compelling. The technical/fundamental indicators suggest the top timing should be now (Dec-May), the timing measures in turn suggest the indicators ought to be flashing red in that window, and they are. Indicators on red began to accumulate towards the end of 2013 and the last few recently fell into place: a decline in margin debt, a waning in the monthly sunspot count, a snapping of the parabolics (biotech, internet), DeMark exhaustion.

For these reasons, it is unlikely that the markets can extend longer or higher, and whilst I cannot rule out higher prices, the attempted break-out by the large caps of several days ago was an important test that looks to have failed. I still remain confident that waterfall declines will erupt, as the historic leverage is unwound, but the question is when. I was too early in their prediction as the solar maximum extended beyond solar scientists’ expectations. Assuming the solar cycle continues to wane from here, then I have two possibilities in mind. The one is those sharp falls erupt imminently, once technical price supports are broken. The other is they erupt around Sep/Oct at the inverted geomagnetism seasonal low, which has hosted most of the major historic waterfall declines. I am specifically talking about 3-4 weeks of panic selling, differentiating that from a more measured bear trend.

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88 thoughts on “Fake Out Top

  1. At 406570 km, the moon is further away from earth than in any period from jan 2013 to dec 2015. This distance is set at july 28th.

    This indicates that 2014 is a year to set a significant high.

    This combined with the fact that the moon had is smallest amplitude in may tells me that weakness in the markets starts in may and we could be sideways untill july 28 th. After the 28th, there is nothing to support the market. From beginning of july, the distance between earth and the sun also starts to decrease. The sun accounts for 1/3 of gravitational pull.

    You can find the apo-/ perigee table on the web. See how in 2007 this table gave the high for that year.

    So, john; I think you are right 😉

  2. I admire you for standing your ground, especially as people start to question your reasoning. If this truly is the top (Dec to May-ish), then you will be #1 in my book. Hat tip for your calls so far.

    Other than your work, are there any books you could/would recommend?

    Thanks

    1. Thanks, shorting the breakout took a leap of faith (in the indicators). All still very tentative though. My stuff is piecemeal – I have read very few trading books.

  3. I think your solar chart is laging. I think there has been more activity in the months after feb so the cycle top is still propagating and the predictions of the top have been revised and will probably have to be revised again so the cycle could still go on a year or two. I might be wrong.

  4. Great call John. I’ve been trading based on your work and am 20% up on last year. BZ mate. I know that there are those that smirk & scoff in the background at your work, but I just keep grinning.
    Cheers again good man
    Mat

    1. To Slater, Silver is in a beautiful descending triangle, suppose to be very bearish. A tremendous amount of speculation is happening plus the Precious Metals bugs are expecting a tremendous move up. $12 is possible. Per the 30 and 60 year cycle a large bear mkt rally is due. We’ll see but I favor the former.

      1. Looking for a swing low here…. could I be wrong… of course….. just trying to illustrate how over and over you can enter basis geometry that I have thousands of archived examples with very tight stop as long as the trade offers a minimum 5/1 reward risk using line as minimum target… in the case of the two entries illustrated, the reversal signals triggered with price up 7/1 initial risk……. John is long PM’S … i am only showing trades in support of that…. John is short indexes… I am only showing trades in support of that… I AM showing where reversal signals show up or targets hit… but unlike others here I am keeping my yap shut if I take a contrary trade.

    1. I go with apotheosis until he is wrong. His assessment, of good news was good and bad news is good as it will bring more QE was exactly correct back when everybody was still scared.

  5. John,

    we have a green period starting next week. Do you think we need to wait for the next red period for this to play out.

    1. Whats your thought on ECB starting there liquidity pumping.
    2. we never had a bear market unless there is a recession(how do you address That)
    3. if there is bubble in speculative market its getting taken care of.

    I am short but dont feel comfortable.

      1. The VIX was low in 2007 until the market started crashing [Yes, the top was in 2007 and not 2008]. I am not sure if VIX is good indicator of top. It is low when market goes up but does not seem to give advance warning of the down market.

    1. If the ECB makes a move, the market will likely get a boost, but I don’t believe it would alter the ultimate course. Stocks tend to lead down into a recession. There has been a recession after each solar maximum.

  6. Here we go again
    Where will the average investor put her money if the market falls?
    In bonds….. @ 2.5%… Do me a favour.
    Yesterday , 10 Year Treasuries fell to below 2.5%…. the lowest in 7 months.
    And all the Bond traders had to close their short positions.
    Rather than pick a top, and see a drawdown, set a target Yield on Treasuries.
    eg 3 %.
    When the yield hits 3% sell the market
    Until then, its a BULL market.
    bobc

    1. A Gary Shilling who has been correct on bonds since 1980 says it usually takes ten years to deleverage after a crisis like 2008, ie bond bull until 2018?! Plus everybody is still calling the end of the long term bond bull market. The long term bond market is still clearly in a long term uptrend channel. Hard to believe. Theoretically the bond bull should end when everyone realizes interest rates have reached a permanently low level, they are extremely safe (the most impt thing), and after deflation, they actually give a good return.

      1. EVERYBODY?I showed a chart here at the beginning of year that called for a new high in bonds…. chart has not changed… target still in place…

    2. There are people who bought bonds betting that the next panic will come (when? TBD) when.yield (10 yr treasury) dropping below 2% because quality collateral will be in great demand and when the FED must kill bond rate (once again) to save XHB,et al.

      10 year treasury at 2.5% is still cheap.l.Do more on things (such as bonds) that work.

  7. That long forgotten but sometimes useful bradly model called for a top this year on June 22. If it is corrrect it is usually only generally correct. Besides Sell in May and go away, the stock traders almanac say if May doesn’t get you then June will.

  8. It’s too early to say something. Market looks very strong yet. All is under control and all important levels remain intact. We are 1,5% away from new all time high…just noise.

  9. Just thrown kitchen sink long on commencement of the very last upleg (5th wave of 5th wave extension of Elliot Diagonal Triangle)
    All this research and no mention of the easiest and most enriching pattern in any decent traders knowledge base. Tut
    For intrigue today is full moon, the expected commencement of John’s upcoming waterfall is next new moon. The triangle apex is spot on next full moon, Friday 13th.
    Indices will give short volume surge (sort of fanfare) at the overthrow. Book tickets now.

    1. Peter
      Could you post your chart here showing the 5 of 5.

      John,
      Excellent & incisive analysis, thorough, compelling & logical. In the medium term I agree with your prognosis & I would love it to happen in the short term, however, I think there is a possibility for another fake out.

      Why? If I’ve understood correctly we are moving into a more positive, speculative geomagnetic phase (please correct me if this is not the case) until the early Fall. Peter’s EW REF OF A 5 of 5 plus, comments I’ve read on the publicly available portions of the ‘Greedometer’ newsletter suggest another up leg after a dip. What that dip might be for the Dow I’m unclear on & perhaps it has just happened this week.

      What are your thoughts on these possible scenarios?

      Again, many thanks for your work, a pleasure to read.

      1. I’m working oldstyle but advised interactive of related index data here…
        http://www.investing.com/indices/south-africa-40-futures-advanced-chart
        Now wave counting has echoed SPX and we had Caldaro agreeing until wave 5 from early Feb, whereas our wave 5 is rising wedge and SPX not looking so clear. Then we commence extension of rising wedge mid March and clocked fast (iii) and (iv) last few days. Compellingly so.
        However, some say that Elliott had no friends, and no one refutes this.

  10. I think a lot of short position were added in these last two days… new fuel for the market to climb and erase temporary losses… everybody is talking about a “market top”… so it is hard to slide from here.

  11. I am also waiting for the crash but I am surprised that it has not happened yet. I am beginning to wonder if things could be different this time: Can we clear all the negative indicators by range trading for a while? What will it take for the large caps to finally drop? Perhaps we need to see some negative earnings growth for SP500? This should happen in 1-2 years [mean reversion of profit margins + slow down in China] which leaves room for another rally.

    1. It is NOT different this time! Every single indcator says top, just as they have every other time and now, just like every other time, investors are finding reasons why this time could be dfferent and hstorical indicators won’t work.

      Patience is a virtue.

      1. I agree 90%. There are two historical indicators that makes me hesitate in calling absolute top: 1. Large caps have not shown weakness. They could still drag the market higher. 2. Financials have not underperformed compared to SP500. This happened before the previous tops.

  12. Slater, everybody is hyperbole for vast majority. At the beginning of the year, Some survey of top 100 economist money mgrs? Showed they all 100% were expecting higher yields. I heard it in the last day or 2 on CNBC. It seems almost everyone on the program expects higher rates. Great contrarian call on your part.

  13. OK latest analysis of JSE Top 40 futures index puts commencement of wave 5 of wave 5 of wave 5 underway as at Friday pm. Yes, I checked – thats right!
    Now it is evident that wave 5 of wave 5 has taken on classic tramlines with wave 4 of wave 5 of wave 5 in place. This show is running out of time for the classic correction at least back to end of wave 4, but it surely will not be alone when this happens, which it must and soon.
    So to me unless US markets take the overdue breather, which is into Major IV, then we will be seeing an extension of wave 5 of wave 5 here that will surely become a piece of enduring history.
    For Caldaro update on US indices see
    http://caldaro.wordpress.com/2014/05/17/weekend-update-448/

    1. Elliott rules constrain 5th wave price and duration action which gives JSE Top40 futures index until Thursday 18th. Then commence the drop or extend.
      PS – Sorry for attracting strange attention

      1. Thursday 22nd (not 18th)
        Today (19th) confirmed 5th of 5th of 5th – Observed with awe & trepidation whilst the entire world of trading commentators are fast asleep (as usual)

  14. John, thank you for sharing your top notch work. Unlike most of the folks who comment on your articles, I’m a novice trader. With nothing more than a gut feeling on an impending stock market crash as well as an overall economic meltdown in the near future, I discovered your site. Your analysis is fascinating and some of your commenters such as slater9 are super informative. Thank you all.
    My comment and question for you guys is somewhat off the general chart and analysis discussion… First my comment, although I am a novice I feel there is something false about the market and the levels we are seeing. My question is, do you think any government or government agency is propping up and manipulating the market for the time being? Perhaps for mid-term elections or even more ominously, perhaps for a orchestrated economic collapse?
    Here are some links from the political left and right viewpoints giving more context:
    http://m.dailykos.com/story/2013/12/21/1264435/-This-Could-End-the-NSA-Financial-Market-Manipulation

    http://jonrappoport.wordpress.com/2014/03/20/is-the-nsa-manipulating-the-stock-market/

    http://www.infowars.com/nsa-to-control-the-stock-market/

    Apologies if my question is too far off the general discussion here.

    1. Investing is about finding value and long term return streams. Trading is about money management. Since money management governs the trades and valuation dictates the investments, manipulation and conspiracy theories are irrelevant to the decision process for both. Such theories will only paralyze you….but I guess they can be entertaining and thought provoking.

    2. Thanks. The general theme of my research is we are dumb subjects of nature, and that includes central bankers and investment bankers. My solar cycle evidence explains the recent excess speculation in the stock markets, without the need to draw in manipulation or control.

  15. Personally I don’t think there is a fast forward way to learn trading, but novice traders would do better if they tried to understand the following thoughts I compiled on this beautiful Sunday morning. Myself, I wasn’t able to follow any rules until my experience made me understand them.

    1. Never trust anybody’s opinion, including your own
    2. Follow the price, in price there is knowledge
    3. Are you better equipped than those whom you want to take the money from?
    4. If there is a number of people around you sharing your opinion, run away;
    the probabilities are that you are all wrong
    5. Never believe what TV, politicians, rating agencies, banks, or other financial services are telling you, directly or indirectly
    6. ‘Anything I want. What a wonderful philosophy you have’ – Toecutter
    Never assume that the market cannot do something; the market can do anything it wants, for as long as it fancies
    7. What is officially known as technical analysis, is not a forecasting tool, money making tool, or help in price analysis, you will do better if you discard all the indicators and resort to just counting the candles
    8. Overconfidence will make you believe in your method while it cannot stop losing money
    9. Fear and anger will make you stick to your method, violating money management
    rules, so that you overtrade with no stop loss and go bust
    10. Euphoria will make you expand your method violating money management rules, so that you lose what you’ve just made and more
    10. If something doesn’t work, it doesn’t work: throw it away and look elsewhere
    11. Don’t trust your idols (Faber, Buffet, Soros, Rogers) as long as they are alive
    and active. By the way, Soros got his ass kicked trying to short .com bubble.
    12. Beware your broker’s advice
    13. Don’t buck the trend, don’t try to be the first to catch the low or the top,
    trends will usually last longer than you think so there will be always opportunity to join the existing trend and profit
    14.The market agrees with Toecutter :
    Traders traders. You haven’t got a sense of humour
    15. Cut the losses quickly; the best trades work straight away. Giving a losing trade more time than you thought means you’re wrong and violating money management rules.
    16. Let your profits grow
    17. Avoid small time frames – below 1 day charts, until you become succesful on higher time frames
    18. A winning trader is a cold blooded aligator who waits patiently to strike with precision in due time and place. If you cannot stop looking for signals while there aren’t any, watch a movie about aligators
    19. If tigers weren’t affraid of humans, all would be man-eaters. Respect the market before it kills you
    20. If the market doesn’t do what you expected, get out. Let the price modify your opinion instead of looking for excuses

      1. P, yes indeed he has been predicting a waterfall decline but if you listen to what he is saying he is saying we are now in a transitional market and that a plunge is a dead certainty once the transition is complete.
        He has actually been trading the market swings very well from that time period. So whilst he is overall now bearish, he is also quite prepared to trade the swings amd is neither a perma bull or as you appear to be suggesting a perma bear. He was up until late last year a bull. He now believes a bear market is imminent. It will just take time for the transition to unfold.
        I suggest you go back and read in depth what he has said.

    1. Allan I have been following him – the problem is that he started predicting this imminent decline in the market around September of 2013 – At what point does he lose credibility – I know he has been playing the swings of the market but the fact is that the Market has not dropped like he proposed initially nine months ago. I personally hope the Market drops like a rock but it seems to recover every time.
      Frustrating to say the least and me start to wonder if the Powers to be will allow this market to drop. Thanks for the input.

      1. P, tell me WHO has perfectly timed this? EVERYONE is a genius after the fact!

        Mate yes I admit that whilst we are near all time highs in the DOW and SPX, it has not done a whole lot for three months.

  16. John,
    I have followed your work for several years and noticed that around the beginning of 2013 you started to indicate that the bull market was about to end. For a time I thought this was true. But, I have since changed my mind and now think that March 2009 was the start of an 18 year or so bull market. In several other posts I have stated my position.

    The current weakness in the market is perfectly predicted by the S&P Futures Continuous Contract Seasonality chart that shows a dip in May before bouncing to a high in June. After the high in June there is a huge decline into October. This may be the waterfall decline that you and others have predicted.

    However, after the decline, the chart shows the market rising into December. After December, it is my opinion that the market will rise through 2015 and into the 2016 November presidential elections. This is in keeping with the historical rises in the market with years ending in 5, the presidential election cycle, and also predictions from people like Jeremy Grantham.

    Why would this phase of the bull market extend to 2016? It may be that the previous post by the PrinceOfFinance is correct and that the solar top is continuing to form. This is in keeping with previous information I posted from NASA indicating a double solar peak. The article states that there may be one solar peak in late 2013 and another in 2015.

    Let’s see if the market rises higher into June. If so, the market would be mirroring the S&P Futures Continuous Contract Seasonality chart.

    Jack

    1. Ref: “March 2009 was the start of an 18 year or so bull market”

      During the secular bull in the 90s (the 2000 dotcom bubble), wages were indeed rising, common folks were just doing great. Now it is doing the opposite, wages were trending down since 2000 (as shares of GDP).

      1. P.S. Not only is it trending down, Personal Wage & Salary Income (as shares of GDP) is the lowest since 1960. Still think the current US economy is just like the secular bull market in the 80s/90s?

      2. I’m in the same camp as Ralph Acampora in today’s CNBC video http://www.cnbc.com/id/101686686 and others like who believe that we are in a long term bull market or are about to start one. However, the market will not go straight up, so there will be plenty of time for waterfall declines. But the end trend will be up.

  17. “The nominal SP500 and Dow peaked-to-date at the full moon of two days ago, making for an inversion.”
    John, the inversion may be due to the recent past solar eclipse which distorted the moon cycle price shape and made it looks like an inversion. This could be verified in history and in future immediately in the next coming moon cycles before and near 6/13 and 7/12 full moon dates

  18. I have confidence in John’s analysis and I sure some panic selling is dead ahead. I believe important top was made last week. SPX may need some more work on the upside, possibly up to 1890, to form kind of right shoulder. Last Monday’s fast move to the upside and then exactly corresponding move downwards on Thursday is probably result of algos working on symmetrical patterns. That symmetry is remarkable so kind of choppy week can also be ahead of us. But this is not required and as soon as SPX 1860 is decisively broken April and then February lows are ahead of us in relatively short order. I am a bit afraid of gold as it looks that triangle that has been formed since 1st of April could be broken to the downside rather then to the upside. But that potential decline should be stopped in 1230-1240 area. During stock market decline the most important thing for shorts will be to control their emotions and not to cover prematurely, or even worse to switch to the upside before most dramatic part. It will probably take weeks of persistent but limited declines until the real thing begins but it is impossible to predict. Please remember support levels work in bull trend but in bear move they will be broken with no bounce.

    1. That chart is a RPT (reverse pt wave) from Wells Wilder and Harding. Once it reverses which it appears to have don , it should be on its way to .5. Great chart, thanks for showing it.

  19. John, ignoring all of your market indicators, on a biological and scientific basis the following sounds much more feasible:

    “The other is they erupt around Sep/Oct at the inverted geomagnetism seasonal low, which has hosted most of the major historic waterfall declines.”

    The inverted geomagnetism will have the impact on the cellular level due to the impact of energy level changes…

  20. Algorithms building right shoulder now at SPX 1884. That is their standard symmetrical approach which works fine in relatively stable environment. But when the time comes and they fail to find any symmetry or other working assumption we will see blood on the streets. Markets should rollover to the downside any minute now. I predict negative SPX close.

  21. Nasdaq is retesting third time the resistance within the current pause which has an upward bias. This alleged right shoulder is getting longer…I think the resistance will be broken.

  22. SPX may even go to 1890 as I wrote earlier but it will still look like right shoulder to me. Gold even more interesting today… another fakeout to the upside and then rollover. It seems triangle may break down in Gold… Algos made it all to CGI game that is why prices form common and symmetrical patterns but in much more rapid way then humans… they need to restrict or abandon HFT after next market crash.

      1. I don’t believe that gold will break down substantially. That is not to say there isn’t a risk of $50 on the short side. Just that the upside potential is far more than any downside.

        All the talk of $1k gold is ludicrous and would mean that just about every mine on the planet would be unprofitable

    1. I agree with you, Allan. Unfortunately TPTB are doing everything they can to suppress metal prices to defend the declining dollar, at least for now.

  23. John, many thanks and great work. For anyone interested there was an interesting article over the weekend about Rogue Government that I think fits in along side your cycle work.

  24. Allan, commodity prices can go below production costs. How many times governments in South America had to buy sugar and coffee from farmers who would be killed by market prices? As to gold: it goes nowhere, does nothing, I don’t understand those who force themselves to see signs of gold breaking up or down. It’s just a waste of time. Look at weekly chart, the range is narrowing and the price sits right in the middle. Probably the same people will be talking about gold to top or bottom, while gold will be on the move lol. Type ‘gold’ in stocktwits, there is nobody talking about ‘gold doing nothing’. Yeah, it goes nowhere, for now.

    1. despe906, but commodities are beginning to trend up, CRB is now within its highest level this year. Inflation expectation is also brewing as TIPS (Treasury Inflation Protected Securities) is breaking out of its one-year consolidation. There seems to be a disconnect between metal prices and commodities, for now as you said.

      1. I am long term bullish on commodities. Yes, there has been some buying recently, natgas, coffee, some are lagging : sugar.

  25. central-planned market is not let to correct from these levels. too many bears around. For cyclical maximum, we should expect that NOBODY believe anymore in a new bear market.

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