End Of The Mania

Posted on March 22, 2015March 22, 2015 Posted in Geomagnetism, Indicators, Macro, Solar Cycles, Stocks287 Comments

The irrationality continues, but not for much longer.

After last year’s solar maximum, the cross-asset picture changed. Global stocks entered into a topping range whilst money flowed into the US dollar and treasuries, plus commodities (shown inverted) collapsed, all in a deflationary recessionary wave.

Source: Stockcharts

Global leading indicators turned down from that point and are now negative, like in 2000, 2008 and 2011.

Source: Goldman Sachs

China data turned sour.

Source: Sober Look

US earnings projections and economic data diverged sharply from the stock market.

Source: Zero Hedge

Also captured here in homebuilder stocks versus housing data.

Source: Not_Jim_Cramer

Buybacks fell away from their peak.

Source: Factset / Jessie Felder

And hedging moved contrarian.

Source: Sentimentrader / Sundial

In short, everywhere you look the footprint of the solar maximum can be seen: the subtle peaking in human excitement in terms of both economic activity and financial market speculation around mid-year 2014.

Source: Not_Jim_Cramer

Source: SpiralCalendar

Following the solar maximum comes the peak in geomagnetic disturbance which adds to the negativity. See here the major storms (red downward spikes) of July and August 2000 which coincided with the SP500 reversal, all following the solar maximum of March 2000.

This last week saw a similar occurence of a major geomagnetic storm, the massive red spike down on the right:

Put into a trend, geomagnetism has been diverging from the stock market since mid-2014, like the rest, and that storming serves to steepen the trend.

The TR-CRB commodities index has tracked the trend well. This is reality, whilst stocks are in a mania prone to a major reset.

Back in 2000, the SP500 finally gave up its levitation on 1st September. We probably don’t want to focus too much on the timing of that lag, but instead note that we have the same comprehensive leading removal of supports: solar maximum peaked; geomagnetism intensified; divergent earnings and economic indicators; buybacks and combined central bank printing peaked; saturation in allocations, sentiment and valuations; commercials and hedgers short; money flows into bonds and dollar.

With hindsight we can look back on the first half of 2014 as too soon for a peak in the mania as the solar maximum wasn’t yet done, but with a host of warning flags present in allocations, sentiment, leverage, valuations and more. We can look back on the second half of 2014 and see a typical topping process in a whole range of indicators: negative divergences in breadth and volatility, declining forward earnings and leading indicators, a deflationary wave in other assets and economic data, all occurring whilst price continued to levitate. And, I believe, we can look back on Q1 2015 as the completion of the missing pieces of the puzzle: commercials go short, insiders press sell, geomagnetism ramps up, data surprises to the downside more than expected.

Q2 2015 then should look like this: economic data doesn’t improve, realisation that earnings and leading indicators are staying divergent, geomagnetism continues to pester and turn the tanker of sentiment, stocks start to decline and in turn recession models start to wake up.

A host of leading indicators for the stock market suggest equities are overdue the major reversal, and it’s hard to find ‘fuel’ for prices to continue to rise into mid-year given the all-round picture from indicators, namely saturation and divergences. I therefore have not given up on the March-April seasonal low: a sharp leg down from here to kick off the bear market. Let’s see how this week unfolds: we need to see the telling price reversal, and until then patience needs to be maintained.

ZIRP vs Solar

Posted on March 15, 2015 Posted in Bonds, Indicators, Macro, Solar Cycles, Stocks441 Comments

US economic surprises are now at their worst level since 2009:

Source: Bloomberg / Jessie Felder

A trio of such bad data releases are charted here: retail sales, wholesale sales and rail traffic:

Source: Not_Jim_Cramer

Source: Callum Roche

They are all recessionary. But Charlie Bilello hypothesises that the pattern in economic surprises over recent years could be inspiring stock market participants to hold through:

Source: Charlie Bilello

That pattern is a bit of a mystery and could suggest problems with the Citigroup calculation. Regardless, our positioning post-solar maximum should spell recession, no recovery this time:

(my chart)

The picture is similar for earnings. Forecasts for the near future are negative, yet further out participants expect earnings to recover dramatically again:

Source: Charlie Bilello

As things stand, the estimated earnings decline for Q1 is -4.9% which is the largest drop since 2009, and the bigger picture for declining EPS is shown here:

Again this would be consistent with a bear market and recession, unless that dramatic recovery later in the year is to take place.

Solar theory argues that we see a speculative bubble into the sunspot maximum, which then pops post solar peak. People unwittingly buy and speculate both in the economy and financial markets into the smoothed solar maximum, and then do the opposite once the sun’s activity starts to wane.

There is some argument that government bonds are in a bubble, given their long bull market and ultra low yields. However, a look at household and fund manager allocations reveals the bubble to be in equities not bonds:

Source: Fat-Pitch

And the bubble in stocks becomes clear when we consider valuations, sentiment, dumb money flows, leverage, and more.

Commodities may have undergone recent falls but they were not in a bubble leading into the solar peak. Real estate has recovered some in the last several years, but does not show bubble characteristics. Sentiment and allocation to bonds has remain depressed throughout. Cash allocations are at low levels.

A common argument is that ZIRP encourages money into equities. Bonds and cash are returning nothing. At least some yield can be found in stocks.

Perhaps this explains why sentiment, allocations, valuations and leverage have remained at ‘saturation’ levels. Money has flowed in to maximum levels, producing common bubble characteristics, but money hasn’t flowed out the other way whilst ZIRP persists. The shallow corrections in equities have swiftly seen those measures topped back up to full.

Which brings us to this week’s FOMC. As things stand, analysts expect rate rises to start in several months time. Yet economic data of late has been fairly dire, which means the Fed may play safe and delay. If the Fed now resets expectations for rate rises (to start later) then will the correction of the last 2 weeks in equities be swiftly brought to an end and stocks rally to new highs on all-in measures again? I consider it a key test of whether ZIRP is the main driver.

It’s a test I expect to fail as I don’t believe it. I maintain the driver is the solar maximum, and that we see a range of evidence that speculation and the economy did indeed peak around the mid-year 2014 smoothed solar max. Even central bank balance sheet expansions topped out around then, as they too are subjects of the sun:

Source: Chris Carolan

Stocks:dollar continues to show a clear peak at that time:

Source: Stockcharts

The negative divergences in volatility, junk bonds and breadth remain in place since then:

Source: Stockcharts

All this should mean we are at the end of a topping process.

But how do we square this with action in the Dax and Eurozone indices? I suggest as a function of the sharply declining Euro:

Remember the Euro was traditionally seen as risk-on? Hence the Dax and Euro largely moving in the same direction pre-mid-2014. But then, post solar max, things changed and remain changed.

Flipping back to the US, insider selling has leapt to a major warning level:

Source: Bloomberg / Nautilus

If we combine that with the commercial positioning, maybe the market can finally roll over here.

Source: Timing Charts

The Euro-dollar remains set for a significant reversal (positioning, sentiment, oversold/bought). Maybe then we can see a sell-off in US stocks and out of the US dollar occurring together: a contra-US move reflective of the current relative economic and valuation divergences. Just a guess.

By geomagnetic seasonality I still have my eyes on a March/April bottom, but this would be a significant low. This would imply a sharp sell-off erupts out of the initial falls of the last two weeks. Should that not occur then the case would build for the markets not properly rolling over until mid-year, and that would still not be inconsistent with the insider/commercials charts above (markets peaked but then took some time to roll over).

Select indicators hit washout levels by the end of last week, but the majority not. However, that keeps options open into the FOMC.

In the bigger picture, this is what I see: valuations, sentiment, leverage and allocations have been flagging a top for some time. Insider selling and commercial positions now join them. Various measures and indicators show peaks mid-year 2014 at the solar max and remain in divergences since. Earnings and economic data (concurrent and leading) have turned negative and Fed balance sheet expansion drawn to a close. If the solar theory is correct then earnings and economic data won’t come back here, and the realisation of this will finally see the scramble for the exits. Based on history a crash is already written in the leverage and highly skewed exposure and sentiment. Set against all this, central banks largely still continue to ease and keep conditions favourable for speculation. The outcome will be extremely telling.

State Of The Markets

Posted on March 8, 2015March 8, 2015 Posted in Indicators, Macro, Solar Cycles, Stocks434 Comments

1. Commercial positioning in the EuroDollar is extreme, suggesting a significant reversal should be at hand:

Source: Dana Lyons

2. Gold positioning is not at the same extreme. The positioning of the various groups does not reflect other significant lows yet, so perhaps a little more washout may first come to pass.

Source: Pipsologie

3. Dow commercial positioning is extreme, echoing the 2011 peak:

Source: AThrasher

4. The smart dumb money confidence spread is also now at an extreme matching the 2011 peak:

Source: Sentimentrader

5. Note that both the above two charts show a lead time into the true market falls in 2011 of 2-7 months. Meanwhile, the divergence in ECRI leading indicators is now 8 months old, and compares with the previous lead times of 2-8 months before the true falls:

Source: ShortSideOfLong + my dotted lines

6. Sunspots have fallen away, mirroring early 2001, and removing the support to speculate:

Source: Solen

7. Valuations and price accelerations in the US line up with the two biggest ever: 1929 and 2000:

Source: NautilusSource: DShort

8. Meanwhile, earnings and economic data continue to be highly suspect, particularly in the US.

Source: Not_Jim_Cramer

Drawing together with data from other recent posts, logic and history would argue that the correction that began last week ought to have legs and that we are at the end of a 12 month topping process. Failing that, then a sideways range into mid-year before a collapse in earnest.

Leading indicators and economic data for Europe are more promising than the US, adding to the case for the Euro to reverse fortunes. The rising dollar continues to add to the deteriorating earnings picture in the US. Looking further out, the leading indicator picture for the US improves again. But recall that evidence reveals that the stock market leads the economy, not the other way round. As long as stocks hold up, the weath effect prevents major economic problems. However, we are seeing all-round fragility in the economic data, meaning sharp falls in stocks would likely to tip us both into recession and deflation. Therefore, it comes down to the stock market. Those pointing to benign recession models as supports for the stock market have it the wrong way round: when the stock market begins to fall, the recession models spurt upwards.

With a focus on the US, the scene is set for such sharp declines. Sentiment, allocations, leverage, valuations, money flows and positing are all flagging a major top. The dollar and oil have severely dented the earnings picture. Economic surprises and leading indicators have both moved sharply negative. The speculation thrust from the sun has ebbed away and Fed balance sheet expansion has drawn to an end:

Source: Not_Jim_Cramer

Conventional analysis would argue there is nothing missing. If conventional analysis is lacking then ZIRP-enabled large player leverage could defy. But at some point, that has to reverse hard as the ponzi scheme collapses and surely now the case is comprehensive for one or more such parties, if applicable, to pull the plug in self-interest.

Weekend Updates

Posted on February 22, 2015February 22, 2015 Posted in Indicators, Macro, Stocks260 Comments

1. US stocks to bonds and to dollar ratios continue to show a clear top mid-2014:

Source: Stockcharts

2. Dow Jones World stock index shows a peak the same as the above, but that peak may be under threat:

3. The SP500 has broken upwards to new highs but breadth, volatility and junk bonds continue to show divergences. The resistance levels in all four are now being tested.

4. Various risk measures remain in downtrends since the turn of 2014, though the cyclical to defensive sector ratio has repaired the most in recent weeks.

5. Sentiment and allocations remain at extremes like previous major peaks. Here fund managers and Rydex:

Source: Fat-Pitch

6. Buybacks and mergers have pulled back from their peaks:

Source: Elliott Wave

7. Bloomberg financial conditions remain in a downtrend since mid-2014:

Source: Bloomberg

8. Earnings growth forecasts have turned down, mirroring the 2007 peak, but price has yet to conform:

Source: Factset

9. The rise in share prices contrasts sharply with current trends in earnings and economic surprises, captured here:

10. The economy is showing signs of recession as evidenced here in wholesale inventories versus sales:

Source: TheEconomicCollapseBlog

11. And leading indicators remain in negative growth and in the big picture continue to show a secular bear market:

Source: Dshort / Ecri

12. Money has been pouring steadily into bonds, with the stocks:bonds ratio in decline since mid-2014.

In summary, we see a hallmark, typical, run-of-the-mill major topping process, that fits with the smoothed solar maximum of April 2014. Firstly, the mania and excess is evident in valuations, sentiment and allocations. Secondly, between the start of 2014 and mid-2014 various indices, ratios and indicators made their telltale breakdowns and divergences. Thirdly, leading indicators, economic surprises and earnings have all turned down. Fourthly, buybacks, mergers, margin debt and leveraged loans have all stalled or declined. YET, despite all this, price has not conformed, so there is something missing from the analysis.

I don’t subscribe to the view that the solar maximum is producing an extended mania like in 1929. We see in the charts above that a typical underlying topping process has occurred centred around last April’s smoothed solar maximum. It all fits as expected. But something is keeping nominal prices rising. So what’s different this time? By a process of elimination we do get to the influence of dark pools and primary dealers against the backdrop of QE and ZIRP.

The dominance of the dark pools over the main exchanges the last couple of years is shown here:

Plus the leakage from the primary dealers (from who the central banks buy bonds with their QE money) into the stock market. 80% of QE money may be parked as excess reserves but correlations and reports suggest some of the rest finds its way into the stock market.

It’s not easy to quantify either influence accurately. However, all historic manias saw leverage rising right into the peak. ZIRP enables the leverage here, but it’s not increasing through margin debt or leveraged loans. Speculation, as measured traditionally, peaked out with the solar maximum mid-2014. All things considered, it would make a lot of sense if, as BC said, several of these major players are driving price and using increasing leverage to do so, as that then explains the anomaly. It would mean the stock market has gone from being fair game governed by natural forces, to one in which – temporarily at least – a few large hands are controlling price to some degree.

If so, it doesn’t change the situation with earnings or economy which are moving the opposite way. It doesn’t stop the bulk of market players behaving as normally post solar/speculation peak, as shown in the charts. I don’t believe it changes the outcome, only delays, the crash. If the bull market has become highly concentrated in a few major hands using dark pools and leverage, playing a game of chicken in the face of valuations, earnings, concurrent and leading indicators, then it would take a broad improvement in all those to sustain it, otherwise the risk is the market collapses at any time as one or more players reverse, in self-interest.

We ended the week cementing the breakout in stocks, and I keep my options the same. Either stocks reverse down from the current marginal new highs, heading for seasonal March/April lows and maintaining the real stock market peak as July 2014 – or – stocks move higher in a final mania that extends to the summer. If the latter looks to be transpiring I won’t be playing the long side. I consider it far too dangerous as a collapse could occur any moment. Rather I would bide my time and short again when the pop looks to be occurring. I continue to watch gold for evidence of a renewed (and associated) move to safety, plus the extremes in sentiment and positioning pro-dollar and anti-euro look set for reversal at any time, which would likely fit with reversals in stocks and gold.

For the time being I will only be posting at the weekend. I have engaged in new projects during the week whilst the irrationality of the markets persist. But I remain poised to attack once they finally break, continuing to monitor each day and read your contributions on the board.

Charts Updates

Posted on January 28, 2015 Posted in Currencies, Indicators, Macro, Stocks245 Comments

The big picture looks like this:

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.

Source: J Lyons

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

Source: Moneymovesmarkets

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

US leading indicators remain mired negative.

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:

Source: Factset

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

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

Source: Macromon

Source: J Lyons

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

Source: Barrons

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

Source: SoberLook

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.

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:

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.

S O L A R C Y C L E S

Category: Macro

End Of The Mania

ZIRP vs Solar

State Of The Markets

Weekend Updates

Charts Updates

Macro Updates

Equities Bear Began July 2014

More Indicator Updates

End Of 2014