Triple Confluence Peaks

Posted on January 11, 2015 Posted in Geomagnetism, Indicators, Solar Cycles, Stocks102 Comments

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

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.

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

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.

Source: FiendBear

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

Source: 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.

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

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

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

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

FTSE, CAC, DAX and Euro Stoxx indices

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

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

Posted on January 8, 2015 Posted in Bonds, Indicators, Macro, Stocks103 Comments

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.

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.

Source: 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):

4. Russian CDSs rocketing, warning of potential default:

Source: Charlie Bilello

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

Source: Charlie Bilello

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

Source: Charlie Bilello

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

Source: Markit

8. US factory orders annual growth now negative:

Source: Alhambra

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

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.

Source: Charlie Bilello

Source: Phomax

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

Source: Andrew Thrasher

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

Posted on January 6, 2015January 6, 2015 Posted in Geomagnetism, Gold, Indicators, Macro, Solar Cycles, Stocks128 Comments

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

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

Source: Stockcharts

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

Source: NOAA

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

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

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

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:

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

(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.

Source: Yardeni

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

Source: DShort

10. Ditto financial conditions:

Source: 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.

Source: Inflated TemperSource: 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.

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

Posted on January 2, 2015 Posted in Currencies, Indicators, Macro, Solar Cycles, Stocks, Uncategorized131 Comments

1. Topping thrusts compared:

Source: Stockcharts

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

2. Skew:

Source: Dana Lyons

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

3. Put/Call:

Source: Dana Lyons

Mirrors previous topping processes.

4. Sornette Bubble:

Source: Financial Crisis Observatory

SP500 bubble end still showing as start of July.

5. Sunspots:

Source: SolenSource: 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:

7. US Dollar still ripe for a reversal:

Summing 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.

End Of 2014

Posted on December 30, 2014 Posted in Bonds, Commodities, Currencies, Demographics, Geomagnetism, Indicators, Macro, Solar Cycles, Stocks109 Comments

I’m back and refreshed. Thanks for all the messages, and for all the comments in my absence. Here is the big picture.

1. Primary shift to defensives and away from risk occurred as of January 2014, as measured by stocks to bonds, cyclical to defensive sectors, small caps to all caps and high yield to treasury bonds. Clock ticking from that point.

Source: Stockcharts

2. Solar maximum looks to have occurred around April 2014, marking peak speculation. Equities mania on borrowed time thereafter.

Source: Solen

3. Game over effective start of July. World equities, crude oil, high yield bonds and the US dollar all turned at that point. Deflation in charge.

4. US equities composite, breadth measures and volatility all show the same reversal at the same point: start of July.

5. Those twin peaks in risk appetite at the start of the 2014 and mid-year fit the seasonal model which is from the influence of geomagnetism:

6. Which sets us up for a final peak at the end of Dec 2014 / start of Jan 2015 for those remaining stock indices which have yet to top. I referred to this as my worst case scenario (latest peak) in 2014.

7. Developments in December support this now happening: sharpening falls in crude and government bond yields, flattening of yield curves, blow-off top in equities allocations.

8. A new bear market in stocks will be a cyclical bear within an ongoing secular bear market. No new secular bull market as many believe.

9. This secular position is dictated by demographics.

10. The other play from this is that gold should enter a new cyclical bull within an ongoing secular bull, and this is supported by recent signals such as miners:gold ratio, gold/miners sentiment and price basing patterns.

Source: Glenn Morton / My projections

11. A sampling of stock indices from around the world, below, shows 2014 has been clearly either a large topping process or a large consolidation range. If the latter, then we should have seen excesses in valuations, sentiment, allocations and leverage worked off with time rather than price, yet all those measures remain highly stretched, suggesting this is a topping process.

12. Plus, the two strongest sectors of 2014 are the two that are historical associated with outperformance after bull markets peak out:

Source: Macromon

13. The peak-to-date in margin debt remains close to the solar maximum. This leverage, along with major extremes in sentiment, allocations, tail-risk, valuations and our post-solar-maximum status, is the set-up for a market crash. To repeat what I have said before, until/unless these measures are reset without a crash, then history dictates that is the most likely outcome. Crashes don’t occur often, but when they do, the set-up looks like the current.

Source: DShort

14. Leading indicators and the longer term stocks:bonds ratio resemble 2000, 2007 or 2011, suggesting a minimum 19% drop in equities. This is the percentage figure I quoted as my general target for short positions because, stretching the view to the last 100 years, this is the minimum we should expect without being greedy by aggregating various angles on the market. To be clear though, the set-up is compelling for a bear market, not just a sharp correction, so I refer you to the secular bear chart above for the bigger projection.

Source: DShort

15. Which brings us to the value of history as our guide, because 2014 taught us one key lesson: 100 years of reference points may not be enough, we need to allow for the unprecedented. An aggregation of angles shows how unprecedented 2014 became:

Source: Hussman

So what caused this? The most common view is that central banks brought this about with their policies of ZIRP and QE and unwavering verbal support. However, I maintain that ‘central bank policy trumps all’ was rather the mantra for this solar maximum mania than the driver. To prove this, we should now see equities collapse and gold rise despite central banks, and that is the final part of the real time test for the power of the solar maximum. If I am incorrect, then equities should continue their bull market in 2015 as central banks policies overrule. However, I refer you back to all the topping indicators and angles in equities that have amassed, together with the examples of 1930s US and 1990s Japan which revealed central banks’ true relative impotence. Ask yourself if typing numbers into a computer (ZIRP and QE) and saying a few soothing words can really work.

The crazy stretching of indicators delivered this year made for the most difficult year of trading since 2000, the last solar maximum. So if I can make one prediction for 2015, it is that it will be easier and more predictable. I am short equities and long gold and expect patience to be finally rewarded. I wish you all the best for the coming year.

Break

Posted on December 18, 2014 Posted in Indicators, Stocks357 Comments

With my current illness, then Xmas and NY, and what looks like a bounce/pause in the declines off that breadth capitulation, I’m going to take a break from what’s been relentless toil this year for little reward.

I can NOT regret my analysis: by the 1st Jan there were around 30 topping indicators for equities, and they have remained in place all year. But 2014 turned out to be a once in a decade or generation style event, taking sentiment, allocations, valuations and leverage to unprecedented stretching.

As a real time test of the influence of a solar maximum on speculation it has been better than could have hoped, but the associated collapse remains elusive for now. Those super-stretched multi-angled indicators suggest it’s coming, however. Plus, a little more hindsight on the solar data front will allow us to tidy up both sides of the equation.

So, enjoy the festivities and thanks for all your contributions.

John

State Of The Markets

Posted on December 13, 2014 Posted in Bonds, Indicators, Macro, Solar Cycles, Stocks377 Comments

It’s been a while, so here’s how things now stand.

1. The topping process kicked off at the turn of the year with a gradual shift to defensives, as represented here by stocks:bonds, consumer discretionary:utilities, high yield:treasuries and small caps:all caps.

Source: Stockcharts

2. The shift to defensives was a global phenomenon, shown here by German, Japanese and UK bond yields, as well as US.

3. The smoothed solar maximum is likely to have been April 2014. Historically, peak speculation and appetite for risk assets has topped close to that:

Source: Solen

4. In keeping with that, margin debt peaked in February, the commodities index peaked in April and certain breadth measures peaked around that time:

5. Then either side of that, the move to defensives occurred as of January and the price topping formation in equities took place in the window from July to November, with US large cap stock prices rising in a megaphone formation whilst the remaining supports for equities were dismantled and many flags were raised. Here shown are breadth, volatility, bullishness, junk bonds and leveraged loans as examples.

6. Considering the final thrust to the peak to be the rally from October to the start of December, then its size and duration fits in well with similar topping thrusts from history:

2000: 17% in 23 days

2007: 15% in 39 days

2010: 16% in 55 days

2014: 14.5% in 37 days

So is this finally it? Dare we dream that equities have topped out and are now in a bear market? Yes we do.

7. A key change in the last two weeks has been that the remaining leaders appear to have finally reversed, such as the Sensex, Nasdaq 100, Apple, USD/JPY and the Nikkei. These are tentative reversals but the point is they have aligned in the declines.

8. Looking at the bigger picture, households are about as exposed to equities are they likely to be (given no demographic tailwind):

Source: Fat-Pitch

9. Dittto, valuations are as high as they likely to reach:

Source: DShort

10. Sentiment is as lop-sided as it could be:

Source: Yardeni

11. Leading indicators for the US are negative:

Source: DShort

12. Corporate earnings for Q4 have been sharply revised downwards due to both the high dollar and falling oil price.

13. Put/Call ratio is signalling further price declines:

Source: Barrons

14. Stocks are nowhere near oversold yet:

Source: Charlie Bilello

15. However, Rob Hannah’s capitulative breadth hit 5 at the close of the week, suggesting more selling Monday/Tuesday could take this to exhaustion levels.

16. Which brings us to the phenomenon I have covered before: selling right into the close on Friday can trigger steeper selling on Monday due to weekend reflection. Is this finally going to happen? Allocations, sentiment and Skew are all set for it to occur.

17. But what about the favourable seasonality of year end, the ‘Santa rally’ in the second half of December?:

Source: Sentimentrader/UKarlewitz

There is upward pressure into the Dec 22 new moon and a limited history of bull market peaks occurring near the last trading day of the year. Offsetting that, we have downward real geomagnetism pressure at this time of year, and that megaphone price topping formation which ought to now have a destiny with the lower boundary given the overthrow turned out to be just that. Meanwhile gold has built out a compelling bottom and is ready for a rally at the expense of stocks.

The whole topping process is already on borrowed time versus the solar maximum, and indices such as RUT and DAX stretched about as far as they could again in November without jeopardising the topping process. Therefore, I see reasonable odds that the Santa rally won’t happen. In mirror topping years 2000 and 2007, December was a down month both times.

Let’s see if Monday opens the selling floodgates. The key should be a gap down open, with weakness starting from early in Asia/Europe. Should stocks alternatively garner support again then maybe they can hold up into the end of Dec before finally rolling over. But it’s high time we saw weakness into Friday’s close follow through, against that sentiment/allocation/skew backdrop.

Happenings

Posted on December 2, 2014December 2, 2014 Posted in Indicators, Solar Cycles, Stocks964 Comments

Oil plunging. High yield dropping. New all-time lows for bond yields in many European counties and Japan. Gold and silver major reversal. Apple large down day. Crazy spike in Rydex allocations.

ECRI leading indicators for the US negative. A combination of oil price drops and US dollar gains adding to sharp earnings projections revisions. On Sept 30th, earnings growth for Q4 was projected to be 8.3% and revenue growth 3.8%, but now these are more than halved to 3.8% and 1.5% respectively.

SPY looks like this:

Source: Stockcharts

Currently an island/overthrow top. But now we need follow through.

The Russell 2000 looks like this:

Repelled at a critical point. Same for the FTSE shown underneath. If these indices were to maintain their 2014 topping processes then they couldn’t stretch much further upwards.

Indicators largely rolling over again, also suggesting equities turn here.

So it seems like indicators and cross-asset developments are turning the tide on equities just at the critical point.

I believe it comes down to how the price process now plays out. As previously noted, we might see a price range play out from here on divergent momentum which could hold equities up into late December, or we might see a more straight forward reversal from that island top / megaphone overthrow and print a significant down month for December.

We don’t yet see a significant reversal in the US Dollar, and the Indian, Japanese, Chinese and German stock markets are still motoring. Plus, Apple and the Nasdaq 100 reversal candles yesterday need follow through. So these are the threats, but it may be the point at which US equities start to lead to the downside.

Commodities started plunging in May 1929 and forewarned of the stock market woes (hat tip Edward Dowd). They began to tumble in May of this year too. Some are quoting oil’s fall as a stimulus, but it should be clear from associated developments in government bonds and the USD that this is a deflationary wave more in tune with 1929. But this doesn’t pin down when equities might tumble, only that they should be on borrowed time. The latest sunspot update suggests the same:

With the story of the topping process in stocks (which I have laid out in detail on the site) revealing a kick off Jan 1st 2014 and an intensification from the start of July, I maintain the probability that stocks are completing their topping out now, and keep a lesser likelihood as the end of December. Given the recent cross-asset developments in gold, high yield, government bonds and oil, I don’t see a stocks bull market extending into 2015. The Rydex allocations spike looks fairly terminal too.

The situation is fairly delicate at the moment, as a little more craziness can’t be ruled out. So we need to see a follow-though day to the downside. But I believe we are into the final price manoeuvrings before the heavy falls finally come to pass.

Price Anomaly

Posted on November 26, 2014 Posted in Indicators, Stocks338 Comments

The 2 days either side of Thanksgiving are typically bullish so there are reasonable odds November ends as an up month, which would negate the October monthly hanging man candle. However, the last 3 daily candles, two black and one red, suggest a brewing reversal. Seasonality doesn’t always work, so let’s see how today and Friday play out.

Source: Stockcharts

Apple made a notable intraday reversal and closed down yesterday, so I am now looking for follow through from this leader. Meanwhile, bonds and miners had strong up days yesterday, adding to the likelihood painted by other indicators of a turn in equities being close at hand.

All year I have pointed out the outperformance of the defensive sectors normally associated with market tops. Below are highlighted previous years where defensive sectors made the top two rankings like 2014.

Source: Charlie Bilello

1990 finished the year down -6.56%, with a 20% drop within the year. 2000 ended down -10.14% and 2008 down -38.47%. 2011 finished exactly flat, but experienced an 18% drop within it. Yet 2014 is so far up +11.83%. How can we reconcile this?

One way is for 2014 to yet end much lower, with a steep down December. The other way is somehow ‘this time is different’.

Here is the updated comparison of the topping processes of 2000 and 2014, using the Dow Jones World index. The timeline runs similar due to the solar maximum occurring at a similar time of year. In both cases the topping process began in January with divergences from that point in breadth and defensives. The solar maximum itself provided a second peak, followed by a double top in July/Sept to complete the topping process. The notable difference in 2014 is that the double top was higher than the previous two peaks and the subsequent rally back up in price stronger too.

This fits with the picture painted by the defensive years shown further up, namely that the anomaly is in price action. Again, this could be resolved with a sharp crash late in 2014, with price belatedly converging with indicators. Or, option 2 again: somehow it’s different this time.

Another version of the 2000/2014 comparison is shown below, using the Wilshire 5000. In 2000 we saw notable divergences in sentiment/allocations (mania), volatility and breadth as of around July. Price then followed down. In 2014 we see similar divergences from a similar point, but price has so far gone the other way.

I suggest the same two options: a sharp crash is coming to rectify the anomaly, or this time is different.

One way this time could be different is if these divergences are repaired, resetting the topping process. But with froth this extreme, is that realistic?:

Margin debt was released for October. A decline from September, keeping the peak-to-date still as February.

Source: DShort

Net investor credit also declined, with its peak-to-date being August. Clearly the progression in margin debt looks a little different from the 2000 and 2007 peaks, but this again fits with the strong action in price. Nonetheless, the current peaks in both leverage measures fall either side of the expected smoothed solar maximum of April, which fits with the mania peaking around then, putting stocks on borrowed time.

Historically, manias saw (and needed) leverage rise into the peaks. With leveraged loans as well as margin debt having apparently peaked out, it suggests stocks really ought to snap or have snapped, which takes us back to the conundrum of price action, as US stocks are at all time highs here in November.

In the comments yesterday I shared the below comparison of final price thrusts into major peaks, with the rally since October in 2014 being similar in size and duration, although arguably with a little room for more of both:

All the evidence I have shared in recent posts points to this indeed being a final rally, the last peak in the topping process. If so, then we need to be aware of the way these rallies peaked in the past: sometimes with an inverted hammer candle (a strong intraday reversal), sometimes with a topping range whilst momentum diverged.

In other words, if the last 3 sessions have been markers of a change in trend and an end to this 14% rally completing around the new moon then we could see either a strong reversal and no revisit of the highs or we could see a sideways range lasting a couple of weeks as momentum diverges. That both options are possible doesn’t make it easy, so we will just have to take it day by day.