The short term first. The Dow Jones World stock index looks like this:
The current high is someway beneath the July/Sept highs and the lower high lower low trend in tact. The last week and a half has produced negative divergences in RSI and ULT and the previous highlighted instances add to the case for the rally imminently failing.
Bullish percent to put/call ratio and cyclical sector to defensives ratios also show a telling divergence since we turned into November, suggesting the edging up in price over the last few days will be reversed.
By cross-referencing indicators I’ve previously explained why the most relevant analog puts us equivalent to November 2000, and I am still looking for the bar following this box to be delivered this week to mark the trend change:
Interestingly, precious metals and miners have built out a potential reversal base these last few sessions, and back in 2000 at the exact same point gold made its secular bear market low, marked above.
We can cross-reference this with the gold/miners ratio that has reached the same washout level as 2000:
And gold miners sentiment which also reached bottoming levels:
With equities at the end of their bull market topping process, this set-up looks compelling as the launch point for gold into a new cyclical bull within an ongoing secular bull. By demographics, the cyclical bear in gold from 2011-2014 has just been a pause in a longer term bull market that should extend to the next solar maximum of circa 2025.
On the flip side of that, equities should now enter a new cyclical bear within an ongoing secular bear. One of the most common misperceptions out there is that stocks are in a new secular bull market. But demographics, inflation-adjusted stocks and p/e valuations reveal otherwise:
Viewing stocks relative to treasuries reveals more clearly the major tops and bottoms. Below, RSI and TSI show an early warning system for the major peaks. They flagged again by the end of 2013 and have since been divergent, as stocks:bonds has made an identifiable topping process.
The Nasdaq 100 index has had the most parabolic shape of all the major stock indices, but we can see below the same telltale buy/sell pressure and momentum divergences as the previous major peaks have been in place since the turn of July 2014. Those divergences lasted 3-5 months in the earlier events, and the current divergence has now been 4 months.
Finally for today, here are the smoothed solar maxima of the last 11 cycles plotted against Q ratio valuation for equities. Barring the 2000 outlier it has reached the same topping valuation level here at the 2014 solar max as previous solar cycle highs, and should be destined for a true washout level of circa 0.3 before the secular equities bear is over.
Underlying chart: Doug Short