Roundup

Posted on Posted in Bonds, Commodities, Currencies, Indicators, Macro, Stocks22 Comments

These are Gann Global’s projections using Gann methodology (mirrors in time, historical rhymes). Stocks to melt up into October 2012:

Source: Gann Global Financial

Commodities to make a parabolic move to new highs into late 2013:

Source: Gann Global Financial 

Gold to climb back to its previous highs by this September / October:

Source: Gann Global Financial

They also forecast that grains will now make a consolidation and retreat a little before advancing again to new highs, plus that treasuries have begun a new sustaining declining trend. This week’s action in treasuries and yields has the hallmarks of a significant trend change, but let’s not forget the Fed continue to tinker with this market.

Source: Stockcharts

In short, Gann Global are largely in agreement with my own predictions, and the other analysts that I read and respect are generally also more with than against. Marc Faber predicts that stocks may run up here to 1450-1500 before turning in the Fall/Autumn. Chris Ciovacco believes stocks are technically bullish and highlights the risk of a melt up. The Puplava brothers at PFS point to the rotation into pro-risk sectors, the lack of recession evidence, the intermediate term indicators for precious metals and the pick up in economic surprises as supportive for another pro-risk rally. Scott Grannis suggests the divergence between stocks and treasury yields is now being resolved in favour of stocks, and that the key risk is that we see better economic outcomes ahead than priced into treasuries. Tiho’s continued bearishness aside, I largely have those that I respect in tune with my own forecasts, and clearly I don’t consider that a contrarian alignment.

There are several crunch points in the remainder of August which will help determine overall momentum pro-risk or pro-safety. The resolution of the large multi-month triangle on gold. ECB intervention and/or Fed announcement of action at the Jackson Hole meeting 31 August. Whether the Euro can base here above 1.20, and by association pull the US dollar back. Whether leading indicators can pick up and fill in the missing macro support for pro-risk, and in particular whether China can either pick up or deliver stimulus, reflected in the key resistance tests shown below for Hong Kong and China stocks.

Source: Chris Kimble

In the very short term I remain as per my last post – holding my positions until the end of this week, into the new moon. At the time of writing stocks have made little movement since my last post. Chris Puplava highlights today’s Philly Fed news as a likely mover, expected to the upside. Rob Hanna’s study suggests that these last few days of tight range historically resolve to the upside. I personally believe that with the Nasdaq, Apple, SP500 and Dow all within touching distance of their previous 2012 highs, they will go tag those highs. If that were to occur, then we would be looking at the bears’ last stand. However, there is a weekly Demark sell signal on the SP500 and with lunar down pressure erupting as of next week, I am open to the possibility that stocks may consolidate before attacking those highs. But let’s see the action today and tomorrow. As before, I will notify if I take some profits.

I figure you may be interested in a list of all my current open positions:

Long FTSE

Long Dax

Long Hang Seng

Long Nikkei

Long Nasdaq

Long SP500

Long Market Vectors Gold Miners ETF

Long Gold

Long Silver

Long Crude Oil

Long Natural Gas

Long ETC Agriculture (general soft commodities ETF)

Long ETC Wheat

Long Chicago Wheat

Long Coffee Arabica

Long London Cocoa

Long New York Cocoa

Long NY Cotton

Long NY Orange Juice

Long Oats

Long Ultrashort 20+ Yr Treasury Bond ETF (i.e. short treasuries)

In a nutshell, I have significant long positions in precious metals, energy and agricultural commodities, as well as global stock indices. I have a smaller position in short treasuries. I expect to peel out of stock indices first, expecting them to top in late 2012 / the turn of 2013, and then to peel out of commodities into a parabolic finale into mid 2013. I expect to hold short treasuries for the longer term.

Precious metals are the key laggard in my account currently, but I expect them to eventually become the best performer, looking out into 2013.

Natural Gas was for a long time the dog of the account, and my aggregate position is still under water, but in 2012, having exhausted buyer interest, it finally turned as it reached historic extreme cheapness versus oil and the stocks of gas started to come back towards historical averages (second chart below):

Source: Trading Charts

Source: EIA

Crude oil inventories have also begun to move back towards the historical average range and together with the shortage in emergency supplies this has given oil a rewnewed thrust in recent sessions:

Source: Bespoke

And lastly, the climate stats for July have been released and show global temperatures for July on land coming in at the 3rd hottest July since records began, and the hottest in the Northern Hemisphere since records began, continuing to support soft commodity prices:

Source: NOAA

Developments

Posted on Posted in Bonds, Commodities, Currencies, Indicators, Macro, Solar Cycles, Stocks15 Comments

Back from hols and it was a good week for pro-risk and my account. Can pro-risk go further? I maintain that it can. By solar and secular cycles, we should see a blow-off top in pro-risk, with stocks overthrowing (H2 2012) and then wilting (end of 2012 / start of 2013) whilst commodities make a parabolic secular finale (into the solar peak of Spring 2013 and terminating around summer 2013). So do the technicals, indicators and macro data support this?

Firstly, we see the SP100, soybeans and corn at new 3 year highs:

Source: Stockcharts

Soybeans – Source: Tradingcharts.com

Corn – Source: Tradingcharts.com

Those developments give more confidence that commodities did not already make their secular peak and that other equity indices could break out. However, it’s tentative for now as these new highs are marginal and until other pro-risk follows suit. Furthermore, we continue to see opposing indicators that present a confused picture. Here are four indicators from Sentimentrader.

Commercial shorts on the SP500 suggest a market due a pullback – although the two occurrences in 2010 and 2011 led to more gains before a pullback. The Farrell sentiment index suggests the SP500 is a buy. Economic uncertainty has reached a level that also could imply a buy. Lastly, risk appetite is up to the kind of exhaustion level that could mean pro-risk needs to pull back – although in 2006 and 2009 we saw stocks push higher whilst risk appetite spent more time at this kind of level.

Source all: Sentimentrader

Drawing those indicators together, it is a mixed picture, but bullish developments in the weeks ahead have the edge.

As previously noted, the rally in equities has been more defensive than a normal healthy rally, but there is potential evidence that this is turning:

Source: Ryan Puplava

US equities have not reached either overbought or overbullish yet.

Source: Technical Take

Source: IndexIndicators

Both show there is room to push higher yet. Meanwhile, overbought and overbullish indicators for the German Dax are a little higher but also room for more gains yet.

Grains had reached levels of overbought and overbullish but have spent the last 3 weeks or so consolidating and relieving those indicators. The fundamentals support further gains ahead.

Gold and silver remain at the low extremes of sentiment (public opinion, Hulbert), suggesting the breakout move will be upwards out of the mutli-month triangles. This is supported by the recent acceleration in soft commodities, recovery in the oil price, and renewed global efforts to maintain negative real interest rates.

Treasuries have pulled back, and there is a good chance of this continuing, due to the parabolic unsustainable rise coupled with having reached overbought and overbullish extremes.

Turning to global macro, Euro debt has continued to pull back from accute:

Source: Scott Grannis / Bloomberg

Citigroup economic surprises continue to maintain a rising trend for the US, emerging markets, and G10 nations (shown below).

Source: Bloomberg

However, global leading indicators continue to languish. China trade data on Friday was particularly bad. The latest OECD readings show a precarious global economy. ECRI leading indicators for the US look reasonable. Conference Board leading indicators for the key nations are below and show a picture that is notably more negative than positive:

Source: Conference Board

US earnings this season have come it at around a 59% beat rate, compared to a 62% average since 1998. More of a negative than a positive.

Geomagnetism has been fairly benign the last 3 weeks and the forecast for the next 3 weeks is likewise. That has finally given the geomagnetism models an up turn.

The SP500 remains significantly above the geomagnetism model, and this is reflected in the SP500 being one of the most expensive global indices by p/e valuation. So at some point we should expect the SP500 to correct, but when? Well, I maintain not yet – that stocks should first go on to make new highs in a cyclical bull overthrow finale. I believe the SP100 is the first to lead the way.

Into previous secular/solar peaks (secular asset peaks align with solar maximums), increasing sunspots had the effect of inspiring speculation excess in human behaviour. I believe that’s what we are seeing unfolding here, but it’s not directly measurable. We need to look for the signs. Pro-risk assets going to new highs. Risk appetite high and staying high. Pro-risk assets leaving behind the geomagnetism models (for a period). Excessive speculation in the context of the current economic situation.

There is some evidence for each of those, but we are just getting started. We need to see more stock indices move to new highs. We need to see gold and silver break out upwards. A period of Euro outperformance versus the dollar. And most likely additional fuel by global central banks.

In short, I have no current reason to doubt what I have maintained for some time will come to pass (as per the first paragraph in this post), but it will become much clearer one way or the other as the remainder of 2012 plays out. The current picture is mixed, but there is increasing supporting evidence.

For now, I am looking once again to lunar phasing for a near term position tweaking. Namely, the new moon is this Friday, which suggests positive pressure into the end of this week, supported by tame geomagnetism. If pro-risk pushes higher into this Friday, I may trim back my overall pro-risk positions again, and will notify you if so. However, I will be looking for evidence of overbought/overbullish and technical resistance. I will also be looking at developments in leading indicators or central bank  action between now and then. September and October is typically a more difficult time for pro-risk, however this has not historically applied in a US election year, plus this is the run-up into a solar peak.

Opposing Indicators

Posted on Posted in Indicators, Stocks8 Comments

A lack of concrete action from Draghi yesterday and pro-risk sold off accordingly, making for an appropriate full moon low. However, there was a little recovery into the close and this has been continued this morning (Europe time), suggesting the markets were holding up on more than Draghi’s promise. Gold is back into its large triangle meaning the breakout, for now, was premature. By lunar phase and geomagnetism the pressure is upward for pro-risk as of next week, so for me it is back to watching and waiting. My focus remains on leading indicators which I see as crucial to market fortunes now. ECRI for the US today and then the next 2 weeks give us the latest Conference Board and OECD leading indicators for key countries around the globe.

There is an interesting opposition of indicators for equities. First AAII sentiment says the stock market should go up from here.

Source: Sentimentrader / AAII

But second, Rydex involvement in the market says the market should go down from here.

Source: Sentimentrader / Tiho

Yet, third, Wall Street strategists equity allocation recommendation says the market should go up from here.

Source: Business Insider / BofA (Hat tip Gary)

And fourth and last, open interest shows that large specs and commercials are short and small specs long, which can be read as smart v dumb money, suggesting the market should decline from here.

Source: Cotpricecharts / Bill L

It’s rare to find normally reliable indicators at such odds with each other. What does it mean? I noted that this current rally isn’t a run-of-the-mill rally. Small caps are underperforming – although Quant Edges and Sentimentrader have now both run studies which suggest this is historically actually bullish for the market ahead rather than bearish. I suggest the market action will morph into something more typical – either a full involvement rally or a regular decline. But which is it to be? Putting my wider views aside (secular and solar supporting a bullish resolution) I would suggest the opposition of the indicators above suggests the market may struggle to move decisively one way or the other – at least until one of these indicators starts to shift the other way. So I will be watching for what shifts and which way.

I am on hols next week so there will be no posts and no model updates until w/c 13 August.

State Of Play

Posted on Posted in Commodities, Currencies, Indicators, Macro, Solar Cycles, Stocks6 Comments

Let’s start with the big 3 macro: economic surprises, Euro debt and leading indicators. Economic Surprises for the G10 nations show increasing evidence of having bottomed and entered a new uptrend:

Source: Bloomberg

Economic Surprises for Emerging Markets even more so:

Source: Bloomberg

Turning to Euro debt, overall PIIGS risk continues to ebb from its 2011 highs:

Source: Bloomberg / Scott Grannis

Homing in on the big two, Spain and Italy, we see 5 year CDSs having entered a consolidation the last few weeks. It is too early to say if a downtrend is emerging, or a pause in the uptrend:

Source: Bloomberg

Moving on to global leading indicators, here is a summary of the latest readings from the Conference Board, showing that we do not yet see general positive signs ahead for the global economy:

Source: Conference Board

There have however been four consecutive weeks of rises in ECRI’s leading indicators for the US. Whilst still negative, they have been trending upwards again:

Source: ECRI / Dshort

Drawing in US earnings, the earnings beat rate so far has been around 60%, fairly average historically, whilst the revenue beat rate has been around 48% which is some way lower than the average of around 60%. This continues to reveal that companies have maintained earnings rather by cutting costs rather than genuine growth, which in turn reflects the economic weakness that we have been experiencing.

So the key question remains whether we are now to see a turn up in growth. I maintain that we will, due to lower commodities prices in H1 2012, due to a natural upswing in growth, and due to a new round of global easing and stimulus currently occurring. That brings us to the Federal Reserve meeting outputs of tomorrow and the ECB meeting on Thursday. What should we expect in terms of further action? I suspect the Fed will reiterate its commitment to act without actually acting, but go with more dovish wording, whereas I suspect the ECB will deliver something tangible. Since Draghi propelled the markets last week with his ‘do whatever it takes’ wording, the markets are expecting something concrete. If we get nothing on Thursday, those gains may be retraced. Thursday is the full moon, and we would normally decline into a full moon. There is still the possibility of big declines the last 2 days into and on it, if the Fed and ECB disappoint, however it rather looks like we will make an inversion.

I have updated all the models this morning. We have a particularly tame 3 weeks ahead in terms of forecast geomagnetism. That provides a backdrop for pro-risk to rally. Presidential seasonality also supports this for equities:

Source: Bespoke

In addition, the oversold and overbearish readings for both the Euro and precious metals also provide fuel for a pro-risk rally and dollar retreat. Chris Puplava’s chart here shows that open interest and real interest rates both support an upward move for gold, with the US dollar apparently holding it back. A mean reversion in Euro-dollar therefore could sustain a rally in gold, which would be technically very important as it would mark an upside resolution out of its 9 month triangle.

Source: PFS Group

Agri commodities have consolidated a little, having reached overbought levels. Fundamentals are still currently supportive with more normal weather conditions perhaps returning as of September, which keeps harvest fears at the forefront for now.

Treasuries made a large reversal on Friday from all-time highs. It is too early to judge whether that marked a significant top. On the one hand, the overbought and overbullish parabolic recent move is ripe for an enduring reversal, but on the other hand the Fed is still a supportive player in that market.

OK, bringing it all together, the question on my mind is whether I want to take some pro-risk profits off the table here into the FOMC and ECB. For anyone new to my site, my portolio of positions is currently 100% pro-risk, with the biggest weighting long commodities (precious metals, agri, energy) then long equities (various global stock indices), then short treasuries in a much smaller weighting. I currently have no currencies positions. Drawing together the secular and the solar I anticipate a pro-risk rally in H2 2012 through to the solar maximum of 2013, but with equities wilting before we reach the solar maximum whilst commodities make their final blow-off secular top. Equities could therefore top out before the end of 2012 but not before they’ve had a pop to new highs.

Right now the picture looks more supportive of that general scenario that I have been promoting for some time. Economic surprises now look supportive, Euro debt is showing signs of coming off the boil again and US earnings are good enough. Leading indicators remain the area of concern, but if I am right in my reasoning for why they should begin to improve then I believe that provides the final piece of support for a move to new highs in pro-risk. Chinese leading indicators in particular are important for commodities. However, soft commodities have had a thrust due to global wierding and precious metals have the support of reinforced negative interest rates from the latest central bank interventions. Precious metals enter their seasonally strong period of the year as of August, with Indian wedding demand one factor, and global wierding remains supportive for soft commodity prices for the near future.  By solar cycles, inflation should peak around the solar maximum, and the price rises in softs that began in June should feed through into in inflation 6 months later. If they can further their rises and oil was to also rise on H2 growth (or supply issues) then we could indeed see that acceleration in inflation into Spring 2013.

So right now I am going to maintain all my positions and not take any profits. However, if pro-risk pushes up significantly more today and tomorrow before the FOMC outputs then I may trim back. I will let you know in the comments if so.

Charts Of Interest

Posted on Posted in Bonds, Currencies, Indicators, Stocks4 Comments

1. AAII sentiment survey bullish percent 12 week average at level that represented important bottom for US equities historically:

Source: Sentimentrader / AAII / TSP Talk

2. Yet Vix is at a level that has represented a top for equities the last 3 years:

Source: Forbes / Bloomberg

3. Risk appetite is reaching towards a level that has implied stocks may not be able to advance too far from here, although there is scope for the rally to continue some way further in price and time yet.

Source: Sentimentrader

4. Treasuries are at record extremes in price (with sentiment at the bullish extreme, suggesting a reversal):

Source: Stockcharts / James Craig

5. Gold miners bullishness is at the extreme low, suggesting miners should rally imminently:

Source: Stockcharts

6. Euro bullishness is also at the extreme low, a level that has historically implied a Euro rally:

Source: Sentimentrader

7. US jobless claims suggest there is no US recession now or ahead:

Source: PFS Group

Technical Equities

Posted on Posted in Stocks5 Comments

This is the technical picture for the Nasdaq, the leading index. In a very tidy channel since the bull market began in 2009, it has made a series of advances and consolidations. I have marked the horizontal supports for the consolidations – in each instance the market retreated to the previous bull market high and successfully backtested it without dropping below it. This has happened again in 2012, with the market holding above the 2011 highs. In short, the bull market is very much in tact from a technical perspective. The Nasdaq is currently at the bottom of its bollinger bands, suggestive of an up-move ahead, however there is scope for the overall consolidation to be extended deeper into 2012 without compromising either channel or horizontal support.

Source: Me

Barry Bannister send me his latest macro deck and I pick out this one chart below which shows his expectations for where stocks are headed. He forecasts reflation for H2 2012, like myself, to push up stocks. He quotes four phases to a cyclical stocks bull in a secular bear, and accordingly anticipates a kind of overthrow move to complete this cyclical bull (similar analysis and forecast to Laslo Birinyi).

Source: Barry Bannister

Now I’m going to contrast the above with Jan’s charts that show the key cycles on the Norwegian index. What both show is a decline into 2013. He expects the decline in equities to begin now or at the very latest October.

Source: Jan Benestad

Eurodollar COT one year advanced suggests a rally in equities into the US elections. Presidential cycles also predict a rally from here into November. The next major Bradley turn is 28th July, and after that 22nd December. I concur with those commenters that Bradley turns can be highs or lows and the siderograph is just a ‘best guess’ for which are likely to be which. Geomagnetism, by seasonality, becomes more intense in September and October, before lessening into year end, whilst sunspots should continue their waving up towards the solar peak, still forecast to be Spring 2013.

So the question is, can we unite all the above?

The best fit is that stocks bottom out as we turn into August, and then rally into year end (Eurodollar, presidential, Bradley turns, sunspots, Bannister, Birinyi).

The alternative is that stocks top out as we turn into August and fall into the US elections (Jan’s cycles, geomagnetism, Bradley siderograph). By Jan’s cycles we would in fact keep falling into mid 2013.

As previously noted, I believe that we will see a pick up in leading indicators in the weeks ahead, which will inspire the best fit to come good. As I expect stocks to top out before the solar peak (and associated secular commodities peak) it is still possible that they then fall into mid-2013 in line with Jan’s cycles. Let’s see if equities rally or fall out of this next week’s Bradley and FOMC. By my shorter term models, we should fall into the FOMC, and then bottom out to rally.

Lunar Phase

Posted on Posted in Lunar Cycles12 Comments

A perfect lunar phase turn in the markets last week – up into a peak at Thursday’s new moon and then since downward. The downward pressure of forecast geomagnetism and into the full moon should persist until the end of next week. I expect to be sat on my hands until then, awaiting the FOMC output and monitoring developments in leading indicators, economic surprises, Euro debt and earnings. My thinking is that stocks will go onto to make a kind of second low in these next 2 weeks, higher than the June low and with a positive Nymo divergence. Meanwhile, I expect leading indicators will start to show signs of basing and ticking up, brought about by a natural upswing in growth, the drop in commodity prices in H1 2012 and the fresh round of global easing and stimulus. That combination would set us up to go make new pro-risk highs as H2 2012 progresses. So, whilst awaiting developments, back to the moon.

I trade the medium term, generally speaking, but use the lunar phase extremes to time my buys and sells. Thursday’s new moon reversal meant my sells captured the short term peak. Lunar phasing doesn’t always work out that well, but in my in-depth guide, Trading The Sun, I refer to 3 papers and my own chart demonstrating the compelling relationship that means overall lunar phases provides an enduring edge in the markets. I since liaised with Stifel Nicholaus and they did their own lunar research and shared with me. So here are their visuals showing the relationship between the SP500 and lunar phasing from 2007 to 2011, with new moons in green and full moons in red.

Source: Stifel Nicholaus

Gold

Posted on Posted in Commodities16 Comments

Measured in US dollars, gold is into the nose of a large triangle that should break one way or the other within the next 4 weeks:

Priced in Euros, the triangle is more bullish and gold is threatening the upper boundary:

Source: Goldprice

The chance of an upward resolution is supported by extreme bearishness in gold, with the Hulbert gold sentiment index averaging -3.3 over the last 4 months which has not occurred since 1991.

Source: Ned Davis / Hulbert

Gold miners bullish percent is also back to the extreme low:

Source: Stockcharts

Senior gold miners are also priced at levels versus their cashflow that are the same as 2008 and 2000:

Source: Gold Versus Paper / Tocqueville

Global central banks continue to be net purchasers of gold, with significant additions in H1 2012. Plus, the current round of further global rate cuts is ensuring negative real interest rates are maintained, which keeps the allure of gold for diversification.

Source: Tocqueville / World Gold Council

I reproduce below Casey’s chart showing the close relationship between food prices and gold. Since this chart was published, gold has made its 9 month triangle with a base at $1550, whilst food prices pulled back to 200 – again a similar move for the two. But based on the acceleration in soft commodity prices in the last few weeks, the food price index is predicted to make new highs in H2 2012, which should imply gold also makes new highs.

Source: Casey Research (my food price line extension and forecast)

I am long gold, and I am presenting reasons for an upward breakout. So let me balance that by highlighting reasons why gold could break down.

One is continued dollar strength and continued Euro weakness. However, the Dollar-Euro bullish trade is currently overcrowded. Extreme bearishness in the Euro, like the bearishness in gold, makes it more likely a mean reversion will occur.

Two is a big deflationary episode. If leading indicators continue to fall or sovereign debt issues escalate to new accuteness or China’s slowdown morphs into a hard landing then we would likely see no asset escape from the sell-off, as in 2008 when gold was sold off to raise cash against other greater loss making trades. However, the technicals above reveal that gold and gold miners have already experienced a washout similar to 2008 over the past 9 months.

Thirdly, if gold already made its secular peak in 2011 then bearishness in gold and miners is likely to be the new norm, with just relief rallies inbetween. In that instance, gold would make a decisive breakdown from the large triangle, followed by a series of lower highs and lower lows. For gold to lose its luster in that way, other assets would have to become relatively more desirable. Real estate is showing signs of rebirth in the West, so that’s one possibility. European stocks are largely in single p/e valuations, which is a second possibility. If money were to pour into real estate and equities then that would imply the Kondratieff Winter was over the the Spring had arrived. New secular bulls in equities and real estate would be underway.

Ultimately I can’t buy the idea that gold topped in 2011 for these reasons. One, secular asset bulls typically end in a parabolic blow off and then steep fall. Gold has instead coiled near its highs. Two, we haven’t yet reached the previous secular extremes in gold:stocks and gold:realestate ratios. Gold is relatively expensive to both, but not extreme. Three, gold demand versus supply is not projected to invert until 2014. Four, by solar cycles, gold should peak shortly after the solar maximum, which is forecast for Spring 2013.  Five, by secular cycles, we should see a second and higher inflation peak 5 years after the last (2008), i.e. 2013.

Bernanke’s testimony yesterday decreased the likelihood of QE3. Whilst that may be a short term disappointment for gold, it doesn’t need it, due to global maintenance of negative real interest rates. Nevertheless, gold remains devoid of momentum and languishing bearish. What will trigger the triangle break? If nothing else, time is close to running out.

Macro Update

Posted on Posted in Bonds, Commodities, Currencies, Indicators, Macro, Stocks2 Comments

Let’s start with Economic Surprises. G10 nations:

Source: Bloomberg / Citigroup

And Emerging Markets:

Source: Bloomberg / Citigroup

The message is one of improvement in actual data versus expectations.

Next, leading indicators. Here is the latest Conference Board summary:

Source: Conference Board

The message is one of continued negativity. ECRI US leading indicators made an uptick on Friday but one week doesn’t make a trend, and it came on the heels of another ECRI media appearance reaffirming their call that the US is in recession. Scott Grannis made a compelling case in response as to why the US isn’t in recession here.

Next, Euro debt. Here are Portugal, Greece, Spain and Italy CDSs:

Source: Acting Man

And here France, Belgium, Japan and Ireland:

Source: Acting Man

There has been general improvement since the Euro summit outputs, in that French, Spanish and Italian CDSs have all fallen back the last 4 weeks. Only Greek CDSs are notably rising again.

Now let’s turn to geomagnetism and sunspots. All models have been updated this morning. There was a big geomagnetic storm the last 2 days (circled on the chart below) and there is another siginificant episode predicted all the way through from the 27th July to the 4th August.

This is higher geomagnetism than is seasonally expected, and the result is that my short and medium term models continue to trend downwards. There is neutral pressure into this Thursday’s new moon but thereafter downward pressure erupts.

On the flip side, sunspots continue their general trend upwards which is a positive.

Next, US earnings. Goldman report today and we will see other big names this week. Only one third of companies have beaten estimates so far, but we need to see the bigger volume of reports this week to get a better feel of the beat rate. So far though, earnings are a negative.

Turning to central bank intervention, Bernanke is scheduled to speak today and the markets are again looking for clues as to whether more stimulus is likely. August 1 is the next FOMC outputs. Otherwise, central banks around the world continue a theme of more easing and stimulus, but there is a new threat to this in that soft commodities have been sharply acccelerating, particularly grains. In emerging markets especially, this is likely to translate into inflation in H2 2012, which may impede further easing. So let’s finally turn to agri commodities.

Soft commodities, particularly grains, have been experiencing a supply-side push due to global wierding. The global climate report for June is in and it was the hottest global June on land on record, as shown below. This follows the hottest May on land on record and the second hottest April on land on record.

Source: NOAA

In July so far, the heat and drought extremes persist. El Nino should develop as the summer progresses which could ease these issues, but El Nino also brings it own problems. For now, grains are surging in price and are threatening their previous two major highs of 2008 and 2010/11. Danske predicts that the UN food price index will accordingly shoot up in H2 2012 to a new high. If that occurs, it will be highly significant in support of a secular commodities peak ahead rather than already occurred in 2011.

Source: Danske Bank

So let me summarise. Economic surprises and Euro debt both appear to be turning in favour of pro-risk. Meanwhile, leading indicators continue to point red, but global policy responses also continue, with the likelihood that at some point leading indicators will improve as a result. However, recent soft commodity price rises may be about to close the window on easing. US earnings gather pace this week and by Friday we should have a better feel for whether they are likely to be a drag on the markets over the next few weeks. Geomagnetism is currently higher than is seasonal, and should be a downward pull on pro-risk after the end of this week. Sunspots, however, continue to rise in an overall trend, and should encourage speculation into commodities.

Trading-wise, I am leaning towards a little more upside in pro-risk into this Thursday’s new moon, due to the technical picture on most charts. Should that occur, I will take some profits off the table. The FOMC is an unknown, however Bernanke could telegraph his intentions as early as today. If he sticks with no further action then the markets may protest again.

I have focussed on the macro today, but technical indicators continue to show excess bullishness in treasuries and dollar and excess bearishness in the Euro (plus a positive divergence) and excess bearishness in precious metals. What this means is that a move the other way is ripe, subject to supportive developments. In other words, some evidence of improvement in leading indicators,  some dovish noises from Bernanke or some big US earnings beats could all set the scene for a more enduring pro-risk rally. Without improvement in these three areas, the danger is the current pro-risk rally tops out again.