The smoothed solar maximum was April 2014. Geomagnetism intensified as of August 2014. This is normal progression: positive pressure up into the sunspot peak, then negative pressure as both sunspots wane and geomagnetism ramps up in the following window. The influence on financial markets is captured here:
We can see that the solar-inspired speculative mania effectively ended in that window of mid-year 2014, with stocks making a topping process between then and May 2015.
Daily geomagnetism reveals an intensification in recent months.
Something similar happened in 2000.
Stocks were led into a 2 year bear.
Back to the current, the overdue snap in equities in August 2015 changed the picture. No V-bounce like in 2013-2014, plus a sharp escalation in complacent indictors. This is not like those 2013-4 corrections.
Various indicators which were stuck at bullish extremes in 2014 have now not only mean reverted but have moved all the way to bearish extremes. Amongst these are Investors Intelligence bulls, US equity outflows, capitulative breadth, Trin and a cluster of 90% down volume days. Collectively they represent bear market bottom readings, leading some analysts to call time on the current the correction in equities and predict a bull market resumption.
In that scenario we need to square why stocks only corrected 10%. In the first chart at the top we can see a year long stealth bear in progress, more apparent in some markets and indicators than others. So did stocks correct in time rather than price? Proponents of that option then have a problem with big picture indicators, in that both valuations and leverage are still a long way from mean reversion.
Due to the lack of demographic tailwind, the bull mania was fuelled by debt: traders leveraging up and companies leveraging up to make buybacks. For the bull market to continue, both those would need to rise to new record highs. Given the sharp snap in equities in August, the appetite for that is likely absent, at least for some time.
Rather, in my opinion, that was the point at which the mania popped, at which record complacency and froth was finally shot down. The bear market bottom readings in certain indicators are indeed a sign of a bear market: a pause in the downdraft. These indicators show selling and fear and are only bullish if they revert. Case in point: in 2014 they were stuck at extreme bullish and did not revert, hence stocks continued to edge up. The question is why they were stuck at record bullish extremes, and the answer is the hidden force of the solar maximum. Now we have the twin powers of waning sunspots and intense geomagnetism, which are likely to keep these indicators bearish.
There is a common misperception that the economy (i.e. recession) causes bear markets, but the data in fact shows that the stock market leads the economy.
US quarterly GDP at past major stock market peaks:
Q4 2007 4.4%
Q1 2000 6.18%
Q3 1987 6.08%
Q1 1973 11.91%
Q4 1968 9.84%
Rather it works like this: demographics and sunspot cycles bring about the major peaks and troughs. In our current case, the rise into the mid-2014 solar max caused the speculative mania in the markets, identified by extremes in valuations, sentiment, allocations and leverage. Then the wane from the solar max and associated intensification in geomagnetism have brought about the burst. That burst isn’t complete until valuations and leverage have reverted sub-mean, a process that is already fixed in demographic and solar trends right ahead.
October is the seasonal peak intensity for geomagnetism. This is the reason for a cluster of major historic drops to lows in October. We are finely poised leading into it. Stocks have made a triangle consolidation following the August drops. Gold has a weak higher low, as a tentative basing. For equities a retest of the August lows would be historically normal following such sharp drops, whether bull or bear bigger trend. But, various indicators are already at bearish extremes, i.e. contrarian bullish, so we could move further sideways or upwards before heading down again. Friday was the new moon, so we are now tipping over again into negative pressure, and this is assisted by current raging geomagnetism. FOMC and OpX this week.
My view. Stocks are in a bear since May 2015. That means no new highs and another lurch down lies ahead. Given the collective shock at the August drop in equities – despite 40+ topping indicators forming last year – another leg down to lower lows would have a major effect on the masses. If indicators can’t pull up now from their current extreme bearish readings, then that’s the recipe for another sharp break downwards in the current geomagnetic environment. Odds are this can transpire as we move into October. Invalidation would be stocks holding up through this window, gold breaking down, and equities indicators pulling away from bearish levels.