Charts Updates

The big picture looks like this:

28janu13

Source: Stockcharts

Global stocks, commodities and the world’s reserve currency turning in unison at the end of June 2014.

Extreme lop-sided positioning in the US dollar suggests a reversal should be close at hand. I expect gold to be a beneficiary.

28janu6

Source: J Lyons

Tying in with this, economic surprises have crossed fortunes in the US and Europe:

28janu30

Source: Moneymovesmarkets

Therefore, the Euro should be due a bounce versus the Dollar.

US leading indicators remain mired negative.

28janu14

Source: Dshort / ECRI

And so far, Q4 earnings have disappointed, as predicted by a rising dollar and falling oil. Here we can see the key turn down in earnings per share:

Screen Shot 2015-01-28 at 08.00.58Source: Factset

The SP500 looks on borrowed time since the end of June 2014, when we look behind price:

28janu20

The stocks:volatility ratio also turned down at that time, and resembles key changes in 2000 and 2007:
28janu40The sector performance tale in 2015 is the same as 2014: defensives lead as they tend to post-peaks:

28janu1

Source: Macromon

28janu2

 Source: J Lyons

Skew remains persistently high, warning of a potential big move in the markets:

Screen Shot 2015-01-28 at 07.01.56

Source: Barrons

Money continues to pour into government bonds, with Swiss 10 year yields now amazingly paying holders a negative return:

28janu11

Source: SoberLook

28janu9

The bullish development in equities is in Europe where various indices have broken upwards on the QE news, with Germany the leader. There is a 12 month divergence in breadth, which I would tie in to the bigger picture above which would suggest Europe may be experiencing a blow-off top.

28janu25

 Source: Indexindicators

If that is not the case, then we should see risk-on firm up again globally, making repairs to the various asset and indicator downtrends that I present. As things stand though, the balance of evidence is still weighted to the global peak being in the past, and if my three key dates are correct, then US stocks should not exceed their December peaks, with European stocks shortly falling into line. Which way this triangle resolves will tell us the answer:

28janu50

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3 Exact Dates

As we wait for the ECB decision and market reaction, I see 3 exact dates being revealed that align with my ‘triple confluence peaks’ idea, i.e. we are seeing major market peaks form at the new moons closest to the geomagnetic seasonal highs (inverted) closest to the smoothed solar maximum.

The smoothed solar max is likely to have been around April 2014.

22janu14

The seasonal peaks (inverted geomagnetism) fall at the turn of the year and mid-year.

22janu1

The new moons closest to these seasonal peaks were 1 January 2014, 27 June 2014 and 22 December 2014, so it follows that we should see major speculation peaks at these dates in the year of the solar maximum, 2014.

Bullish percent to call/put, cyclicals to defensives, high yield to treasuries and small cap equities to bonds all peaked very close to the 1 January 2014 date.

22janu2Stocks:dollar, stocks:bonds, FTSE Eurostox and NYSE composite indices, NSYE breadth, volatility and junk:treasury bonds, oil, US dollar (inverted), leveraged loans and junk bonds all peaked very close to the 27 June 2014 date.

22janu7 22janu5

22janu3

The final date, 22 December, has tentatively topped out the remaining key indices and speculation measures, namely SP500, Dow and Wilshire 5000 (plus an associated bottom in gold) and a blow-off top in sentiment and allocations.

22janu4 22janu6If this ‘dumb’ model of the markets is correct then we should make no new highs from here but rather collapse to a March/April initial bear market bottom (first leg down).

If an anomaly is at hand and the solar max is still ahead or speculation somehow extends further in time, then the next logical peak would be mid-year 2015, likely June 16. However, I rate this possibility as negligible. Look again at the risk measures that changed course Jan 1 2014: they remain in downtrends ever since. Add to these the large range of assets and indicators that peaked June 27 and remain in downtrends ever since too. Then consider the change in market and cross-asset behaviour since the final date, Dec 22, together with that capitulation in sentiment and allocations. This has to be game over, in my opinion. However, if we consider it a game in which central banks can cheat and change the rules, then maybe, just maybe, natural forces can less freely flow through the markets. I don’t think this is likely as central bank members are solar subjects too. However, this is subject to confirmation in a critical real time test in 2014-2015. Market reaction over the next few days to the ECB announcement will be a key tell.

 

 

 

Saturday Markets Update

Stocks ended the week on some buying. We are approaching this coming Tuesday’s new moon and Thursday’s ECB meeting, at which we should expect some kind of QE or new programme of action, given the Swiss central bank’s pre-emptive action this week. Therefore, I expect a little more strength in the first half of this coming week and then a sell-the-news resumption of the equities downtrend, which ought to be the definitive breakdown in stocks, as we head into the geomagnetic low of March/April.

The Dax made a new high on Friday, but this has to be seen in the context of a fast-weakening Euro, and the majority of other global stock indices still dictate the overall peak around mid-year 2014. Shown below are other European indices in comparison to the Dax plus US stocks, together with breadth, volatility and junk:treasury bonds.

17janu1 17janu2

 Source: Stockcharts

Here we see the deflation problem Europe has to address with policy response.

17janu5Source: FT

US earnings season is underway for Q4 2014 and is currently reporting a blended earnings growth rate of 0.6% and a blended revenue growth rate of 0.8%. This the weakest in some time, and earnings forecasts for 2015 are also weak, due to the combined impact of rising dollar and tumbling oil. Meanwhile, economic surprises for the US are dropping towards the zero level and leading indicators for the US continue to flag red:

17janu3Source: DShort

Therefore, supports for the bull continuation have been significantly weakened.

Here is combined smart and dumb money for US stocks: a rare lop-sided agreement that has been a marker of previous major peaks:

17janu11Source: Sentimentrader

Similar topping flags have been raised throughout 2014 but at this point we see a more united degradation in leading indicators, negative divergences, earnings, and cross-asset action. Below we see how December to January has produced intensifying developments in government bonds and currencies.

17janu6 17janu8 17janu9

Industrial commodities have also seen acceleration to the downside in that period, whilst gold has taken off. All these developments make it unlikely stocks can continue their levitation, and this divergence in growth-dependent commodities versus safe haven commodities ought to continue. But what about agri/soft commodities? Largely unloved, but climate could give them a boost. 2014 ended up as the hottest year on record:

Screen Shot 2015-01-17 at 06.38.41

Source: NOAA

Perhaps when the US dollar finally turns, agri may attract buying interest. Positioning in the US dollar remains extreme, whilst the Euro is showing signs of capitulation. Again, I would the see ECB meeting this coming week to be the sell-the-news event.

In summary, developments are now much more supportive of stocks breaking down and gold breaking up. Post-solar-max, degradation in leading indicators and earnings, sharp moves in commodities and currencies, and a lot of data pointing to a mid-year 2014 ‘real’ peak. Back in 2008, stocks and leading indicators were tumbling whilst commodities levitated, but commodities could not levitate for long under those circumstances. I see the same here in reverse, with the cross-asset and cross-indicator breakdowns the prelude for the collapse in equities.

I previously looked at the ‘second chance’ peaks of the similar examples from history, e.g. Nasdaq 2000, Nikkei 1989, Dow 1937. They all showed a main peak followed by a lower high (failed) peak, which was then the trigger for waterfall selling. Looking at stock indices charts for 2014-15, we don’t see obvious such second chance peaks. The most parabolic of the indices was the Nasdaq 100, but this has produced more of an up-and-down range over the last couple of months, than a clear second-but-failed attempt at the high. So, we need to see price develop further to assess, but the picture may be one of a topping price range instead. It does not alter the likely subsequent collapse, which is already written in highly lopsided sentiment and allocations, extreme leverage and the post-solar-maximum rug-pulling.

17janu15

 

 

Solar Models

Solar maxima generate speculation peaks. The latest smoothed solar maximum is likely to have been April 2014. The chief speculation target has been equities, particularly US equities. That mania is demonstrated in valuations, sentiment, allocations, leverage and more. A speculative mania has indeed been delivered at a sunspot maximum again.

The chart looks like this:

13janu3

If we substitute the Dax for the SP500, the aligned peaking looks clearer:

13janu4

But where is the subsequent collapse? It really has to occur within the window January to April 2015 to be both within acceptable range and normal seasonality, with the latter guided by the sun’s second tool, geomagnetism:

30dec12

As things stand, the set-up is as compelling as it could be for this to occur. Global growth proxies, oil and copper, are collapsing. Bond yields are reaching for record lows and yield curves flattening. Volatility is in an uptrend. The US dollar has surged in a deflation wave. Earnings forecasts have been slashed on the moves in oil and the dollar. Plus, the key ingredients for a collapse remain in place, namely excess leverage, very lopsided sentiment and allocations, and a wide range of negative divergences.

Additionally, the real (actual) geomagnetic trend has intensified since August 2014. Here is the commodities index versus trend geomagnetism for the last 6 years. Note the geomagnetism is inverted as higher geomagnetism is negative for sentiment. We see geomagnetism has helped drag down commodities over the last several months.

13janu7

However, when we look at equities, we see them levitating away from the model in an 18 month mania:

13janu6

Combining equities with commodities we see the mania from another angle:

13janu2

The similarities with 2000 are notable. Back in 1998-2000, we saw a similar pulling away from the geomagnetic model. Eventually stocks were dragged back to it, in a post-mania bear:

13janu9

Note how the geomagnetic trend intensified downwards in the second half of 2000. This would have played a role in popping the uptrend in equities, as it tugged downwards on sentiment, and ought to play the same role now given the steepening over the last several months.

I maintain the parallels with 1937. Ultra low rates and QE, deflationary pressures, excessive valuation into the next solar maximum following the demographic peak. We should be heading for a major low in equities several years from now at the next solar minimum. Top chart from S. Tarassov.

12janu5

 

Triple Confluence Peaks

People unwittingly buy into new moons and sell into full moons (typically, not always).

5nov30

People perhaps a little more consciously buy and sell seasonally, but unaware they are being guided by geomagnetism. Again this is more often than not, rather than every time.

5nov40

And people unwittingly buy into solar sunspot maxima, typically or normally.

9nov22

Therefore, it should follow that looking for the new moon which falls closest to the inverted geomagnetic seasonal peak which falls closest to the smoothed solar maximum ought to lead us to a major market peak, in a triple confluence of ‘peak’ buying (within the month, within the year and within the decade, respectively).

Considering the last 5 solar cycles then gives us five exact dates over the last 50 years. They are:

A) SC20: 19 Dec 1968

B) SC21: 17 Jan 1980

C) SC22: 3 July 1989

D) SC23: 6 Jan 2000

E) SC24: 27 June 2014

Did a major market peak fall close to any of these dates? Yes indeed…

A) Major Dow and FTSE bull market peaks in December 1968, two weeks from the date.

5nov25Source: FiendBear

B) Major gold and silver peaks 21 January 1980, 4 days from the date.

5nov24Source: Greshams-Law

C) The Nikkei peaked 29 Dec 1989. The new moon closest to the inverted seasonal geomagnetic peak after the smoothed solar max was 31 Dec 1989, 2 days away. In other words, the rule worked but on the seasonal peak after rather than before the smoothed solar max.

5nov20

D) Major bull market peaks in FTSE 31 Dec 1999 and Dow 14 Jan 2000, both within 8 days of the date.

5nov26

E) Our current scenario. Rather a lot peaked or reversed direction around the date of 27 June 2014:

Stocks:Dollar, Stocks:Treasuries, Junk Bonds and Junk Bonds:Treasuries

10janu1

NYSE Composite, NYSE breadth, Volatility (inverted) and Crude Oil10janu2

NYSE Cumulative Advance-Declines, Dow breadth, SP500 breadth, Nasdaq breadth:10janu3

FTSE, CAC, DAX and Euro Stoxx indices10janu5

US Dollar (inverted), SP500 Bullish Percent, Leveraged Loans and Copper
10janu8

Not only this, but the combined central bank balance sheet expansion of Fed, ECB and BoJ peaked out around this time, as we might expect given the sun should be guiding them too.

Plus, drawing on the Nikkei 1989 experience, if we also look at the geomagnetic seasonal peak that fell at the end of the year 2014, then the new moon was 22 Dec, and the Dow and SP500 peaked very close to this as things stand.

In short, if the stock market is as ‘dumb’ a mechanism as this, then there should be no new highs ahead in any of the indices or indicators listed. The three solar influences of sunspots, geomagnetism and lunar phasing (nocturnal illumination by the sun) silently guided the markets to a peak.

The caveat for this is that solar models are correct and the smoothed solar max is behind us.

So, in the near term, the move up of Wed and Thu last week should be repelled before new highs are reached. Friday’s move down may be the start of that. However, the new moon of Jan 20 is still a high on the geomagnetic model (the last high before we tumble down to the March/April lows) so falls in earnest may potentially wait until after that. The Nikkei in 1990 tumbled in earnest once February hit.

Macro Updates

1. Non-Farm Payrolls out on Friday, a big number forecast. Note the two biggest prints of the last 20 years were March 2000 and May 2010, both market peaks. This is a lagging indicator.

Screen Shot 2015-01-08 at 06.33.09

Source: Trading Economics

2. US earnings reporting season starts on Monday. This chart shows that a contraction in whole economy corporate profits has historically produced a market correction within 0-7 quarters, ticking since Q1 2014.

8ja11Source: Don Draper

3. We are seeing new all-time record lows in 10 year government bond yields in Germany, France, Italy, Spain, Portugal, Netherlands, Japan, South Korea, Australia and Switzerland, with the latter leading the race to zero (source Charlie Bilello):

8ja124. Russian CDSs rocketing, warning of potential default:

8ja7

Source: Charlie Bilello

5. US Inflation Expectations now negative, for the first time since 2009:

8ja6

Source: Charlie Bilello

6. Eurozone annual inflation now negative, for the first time since 2009:

8ja15

Source: Charlie Bilello

7. Global manufacturing PMI dropping sharply since mid-2014:

8ja5Source: Markit

8. US factory orders annual growth now negative:

8ja3Source: Alhambra

9. Combined balance sheet expansion of Fed, BoJ and ECB reversed course as of mid-2014:

8ja8

Source: Chris Carolan

10. Crude oil ROC and futures curve show a bottom should be close. However, a price bottoming process is likely before any long positions would be fruitful.

8ja9

Source: Charlie Bilello8ja10

 Source: Phomax

11. Treasuries to stocks RSI and treasuries to stocks sentiment both echo previous bottoms in stock prices the last 3 years.

8ja1

Source: Andrew Thrasher8ja2

Source: Rory Handyside

So do stocks bounce again here? At some point the pattern fails and stocks break down hard. The question is, are we post-second-chance? I believe the key is whether stocks can rally back up into the Jan 20 new moon, or whether the earnings season is a sell from the outset.

Equities Bear Began July 2014

It’s becoming clearer with hindsight and this is what I see.

1. The bull market topping process in equities kicked off January 2014:

6ja7Source: Stockcharts

2. Speculation peaks with the solar maximum, which was April 2014, putting equities on borrowed time after that:

6ja9Source: NOAA

3. US stocks measured in USD and relative to bonds both peaked mid-year 2014, compare to previous major peaks here:

6ja1 6ja24. Multiple world stock indices peaked at the turn of July, most of the rest by September:

6ja4 6ja55. US stocks composite, breadth, volatility and oil all turned at the start of July:

6ja20

6. The very last global indices peaked out at the end of 2014, with the peaks largely fitting the geomagnetic seasonal model (mid-year, end of year) and close to the new moons of June 27 and Dec 22:

30dec127. These final peaks were delivered on saturation in sentiment and allocations:

6ja3

(AAII equity allocations in December reached their highest since June 2007 too).

8. The final push from mid-Oct to late Dec was purely multiple expansion as shown below, as falling oil and rising dollar both cut earnings forecasts.

Screen Shot 2015-01-06 at 07.28.50

Source: Yardeni

9. US leading indicators have dropped sharply since mid-year and echo previous major peaks:

6ja6

Source: DShort

10. Ditto financial conditions:

6ja12Source: Charlie Bilello

Plus, the US yield curve has flattened more sharply in December, whilst German and Japanese bond yields have reached record lows.

11. Meanwhile sentiment and relative value in the precious metals sector mirrors the 2000 major reversal in gold:equities.

6ja13

Source: Inflated Temper6ja10Source: Gold Trends

Therefore, in keeping with the geomagnetic model, equities should tumble from here to a low around March-time, whilst gold breaks upwards. However, this does not preclude further oscillations in the near term. Short term, we are reaching several oversold readings in equities plus we are now through the full moon.

6ja15

Trin and put-call could produce a bounce here. Capitulative breadth hit 3 yesterday, so not yet at a reversal reading but perhaps getting there with some more selling today/tomorrow.

To sum up, I see the effective peak in equities as the start of July 2014 and any rips in stocks to be sold (whilst gold should rise). Stocks may get a short term bounce but we should finally see the major drop in equities as we head towards March. Earnings season begins 12 Jan and ought to be a sell due to the sharp downward revisions. Historically, major price drops were swift, lasting just 2-8 weeks, so we need to be alert for signs the allocations and leverage is starting to be disorderly unwound.

 

 

 

 

 

 

More Indicator Updates

1. Topping thrusts compared:

2ja1Source: Stockcharts

That 4th chart now stands at 52 days and 15%, so ripe for conclusion.

2. Skew:

2ja2

Source: Dana Lyons

Skew is still in the elevated range warning of potential large move.

3. Put/Call:

2ja3

Source: Dana Lyons

Mirrors previous topping processes.

4. Sornette Bubble:

Screen Shot 2015-01-02 at 07.15.30

Source: Financial Crisis Observatory

SP500 bubble end still showing as start of July.

5. Sunspots:

Screen Shot 2015-01-02 at 07.19.24

Source: Solen2ja6Source: SIDC

Both sources, plus IPS additionally, show the smoothed solar maximum behind us in April 2014 with a value of around 82.

6. Gold and gold miners sentiment still at contrarian depressed levels:

2ja8

7. US Dollar still ripe for a reversal:

2ja10Summing up, the picture painted by these indicators is consistent with my last post, namely that stocks have been in a topping process in 2014, that the solar max and speculation peak is behind us, that the effective peak in stocks was end June / start July 2014 and that stocks are still set for a big move to the downside. Plus, fortunes in the US dollar and gold/miners should reverse, fitting with the reversal in stocks.

Recall the 1989 solar/stocks peak. The solar max was July 1989 and stocks (Nikkei) stretched upwards until the end of December 1989 before finally topping out and falling. However, note the new moon then was 28 Dec, providing an additional optimism peak. Here at the turn of 2014/2015 the new moons are 22 Dec 2014 and 20 Jan 2015.