What if I said the prices stock indices are at currently may never be seen again? I’ve not gone crazily bullish, but it is possible. Let me explain.

This is a compilation of global stock indices, provided by commenter John. They are all in large triangle formations. Symmetrical triangles following sideways action since 2000 is very much in keeping with previous secular stocks bears under permanent policies of inflation, namely sideways coiling.

Source: R Bowden 

So which way are they going to break? A symmetrical triangle forming following a sideways range gives no edge technically – it can go either way. But note that the S&P500 has broken out upwards and is backtesting the triangle, whilst the Nasdaq, not shown, is even more bullish than that.

Below is the last secular stocks bear market. The secular/solar stocks peak of 1968 corresponds to the secular/solar stocks peak of 2000. The secular nominal / solar bottom of 74/75 to 2008/9. A large triangle formed (in red) and broke out to the upside. One year away from the solar/secular commodities peak of 1980 (like now, 1 year away from the Spring 2013 solar peak), stocks had also broken out and were backtesting the triangle – the We Are Here point. Now note that although stocks didn’t gain real new secular bull market traction until mid 1982 after the post-solar peak recession, they never got as low as that ‘We Are Here’ point again.

Underlying Source: Stockcharts

Now take a look at the Nasdaq at the same point. Even more bullish, much like today’s Nasdaq.

Underlying Source: Stockcharts

Cross over the pond, and the FTSE 100 did make slightly lower lows after the current equivalent point, but only marginally.

Underlying Source: Sharelynx

A look at the FTSE All Share paints the same picture: barely new lows after this point.

Underlying Source: Thomson Reuters

Looking at the secular bear market of the 1940s and the Dow Jones, stocks did not take off in earnest until 2 years after the equivalent current point, but again barely reached lower than the lows made 1 year before the solar peak.

Underlying Source: Stockcharts

So, using secular bear market history as our guide and combining with the timing and influence of solar cycles, we have fairly bullish roadmap for equities from here forwards. Into a solar peak we see a speculative maximum, making for secular tops. It therefore follows that stocks do not decline into a solar peak even when it is a secular commodities solar peak (and this is reflected in my historical analysis of stocks returns into solar maximums), as the pro-risk sentiment prevails. But what’s interesting is that the post-solar peak recession and bear market didn’t do much damage. It reflects what I previously said about redefining secular stocks bulls as beginning at the nominal lows of 1942, 1975 and, I argue, 2009.

In past secular bears, the low point has come in the middle of what’s commonly understood to be the secular bear range, followed by a gradual process of repair. It therefore follows that the nominal lows for equities are successively higher after that point – e.g. between 1975 and 1980, between March 2009 and 2013. Right now, things look bleak. It seems that global growth struggles to sustain without central bank stimulus. Euro debt keeps returning to the fore despite government actions. Large companies are still going under as weak economies prevail. Yet, this is how secular stocks bulls begin – a huge wall of worry, which is dismantled piece by piece. They don’t start from everything being fixed, they start from a mess, but a mess where equities are historically cheap and a lot of excess has been purged from the system. All the last 3 secular bears have had more in common than differences: problematic inflation combined with sluggish growth, geopolitical disturbance, debt crises and the loss of companies and jobs. If it seems like problems are major this time round, it was no different back then. In 1979, the equivalent point to now, there were debt crises in Latin America and Korea and the USA had to raise its debt ceiling, much like today. In 1946, again the equivalent point, excessive war debts meant that interest rates had to be kept low, despite inflation, much like today.

At the turn of 2009, the talk was of total system melt down. Consider that the start of the huge wall of worry, the very messiest point. Now we are no longer facing total system meltdown but facing Euro debt contagion and economies seemingly dependent on central bank stimulus. That is an improvement on 2009, and the stock market (the US stock market) has doubled since then. There has also been significant cleansing and repair since then: bloated companies purged, house prices deflated to historical normal ranges, household debt burdens back to the levels where the last secular stocks bull market began:

Source: Scott Grannis 

Fund flows in equities have been negative the last 5 years and continue to be outflows. Retail participation in stocks still isn’t happening. Yet participation in treasuries continues to increase despite real treasury returns being negative. In other words, the fear of stock declines is so great that people would rather be parked in something paying a guaranteed small real net loss.

Source both: Scott Grannis

Stock dividends are highly attractive compared to treasury yields, back at levels compared to 2009. As it slowly dawns that stocks are going up, not down, money still start to flow the other way. Once that occurs the secular stocks bull will truly gain traction.

Source: Chris Puplava

Secular bear markets in stocks typically end with p/es in single digits. Current country p/e ratios that have reached single digits right now include China 7.2; Hong Kong 9.2; Norway 9.6; Russia 5.2; Singapore 8.9 and UK 9.7. Others aren’t there yet, such as US 14, Brazil 10, Germany 11, Australia 13 and Japan 14, but after the next bear and recession, circa 2014 by solar cycles, I expect them all to be there. Consider that US stocks topped around p/e 40 in 2000 – again, that’s quite a process of repair.

Once the natural cleansing cycle is close to completion, genuine global growth will get going again, without central bank support. Technological evolution will be the engine. Excess debt may have been transferred to government balance sheets, but the major economy debt to GDP levels aren’t at crisis points. Once revenues pick up and central bank support diminishes, the rate of balance sheet expansion will slow. Euro debt and the Greece situation needs further counter action currently, but governments have made it clear, both in words and actions, that they will step in to prevent worst case scenarios.

In short, I acknowledge the seriousness of the issues we face right now, but also the intent of global leadership. Most importantly though, history reveals that it is normal at this point in the secular bear to still be facing such challenges and that despite the challenges (or even thanks to them: wall of worry) we should be looking up, not down for equities. I’m not implying that all-in on equities right now is the way to go. Commodities should make their final blow-off move into next year, making them more attractive than stocks over the next 12 months, and thereafter a bear and recession should eventually provide the final great opportunity to get into equities. But there is a chance, even a likelihood, that the low in equities at that point will be higher nominally than now, which makes me reflect on all the long positions I took last week in equities.

Turning to commodities then, and using history as our guide again, there was a peak in inflation in 1942 and a higher peak in inflation in 1947, the solar / secular commodities peak. There was a peak in inflation in 1975, and a higher peak in inflation in 1980, the solar / secular commodities peak:

Source:  FRBSF

2013 is the forecasted solar peak, inflation peak and secular commodities peak by solar cycles. We saw the first inflation peak in 2008 – which would be 5 years prior, just like in the 1940s and 1970s. The chart below shows the 2008 peak and our trending upwards since then again, despite the ‘deflation’ chatter.

Source: Shadowstats

Now look at the commodities charts, courtesy of John again. Large symmetrical triangles, like stock indices, but the difference is that these formed in upward rising trends in place since 1998/2000. By the book, that makes them more likely to be continuation patterns. I believe they will break out upwards, and when they do, they should make the acceleration into the secular /solar peak, fulfilling the inflation prediction at the same time.

Source: R Bowden

In my last analysis I suggested a new secular stocks bull began 2009 lasting through to 2032, so does that mean you missed the boat if you didn’t load up in equities in 2009? Well, with the secular commodities solar peak expected around Spring 2013, take a look at the Dow action into previous such peaks, denoted by the orange lines in the long term Dow chart below. The Dow pulled back just before these peaks and tracked sideways across them, making for a higher nominal peak than denoted by the nominal low red circles, but a good buying opportunity. So, if history repeats and we see a commodities overthrow into 2013 followed by a stocks low around 2014, then the most profitable trade would be to focus investment in commodities until the 2013 solar peak and then switch to stocks at their low circa 2014.

Let’s now remove inflation and look at ‘real’ long term stocks. i.e. net of inflation – this time the SP500. I have marked the same secular and interim stocks peaks in green and commodities secular peaks in orange, plus the full risk assets cycle between the black lines. In real terms, the dip in real stocks value around the secular commodities peak each cycle is notable, followed by an upswing into the interim and secular stocks peaks. The result is a waveform, marked in dark red, known as a sine wave. This wave pattern is very common in nature, occuring in ocean waves, sound waves and light waves. Again, there is an upward trajectory to the long term wave, which reflects technological evolution and increasing human value-add. Following the waveform and the history, a lower real low for the S&P500 should be yet to come around the commodities / solar peak of 2013, and it looks like it needs to fall some way.

Source: Dshort

Yet, if we adjust for ‘undoctored’ inflation (Shadowstats figures) rather than ‘official’ inflation, the chart looks quite different, with the 2009 real low already at the low extreme:

Source: Dshort

Between the two charts, some kind of rounded bottom looks likely with another low still to come, before stocks take off in real terms, and I suggest it is indeed possible that we see a higher low in nominal terms and a lower low, or perhaps double bottom, in real terms, with inflation making the difference between the two. By solar cycles and history, inflation should peak along with solar activity and commodities, meaning the difference between the nominal and the real price of stocks may be fairly substantial at that point.

So let’s look at inflation. The chart below shows that both official inflation and Shadowstats inflation peaked in early 2008, when oil spiked. If, as some argue, we have already seen the secular peak in commodities, say with oil in 2008 and with precious metals in 2011, then we are unlikely to exceed that 2008 inflation peak.

Source: Shadowstats

The implications of that would be that the circle on the next chart would mark the inflation peak of this solar cycle, and that would be an anomaly with previous solar maxima both in time and height.

Of course if we apply Shadowstats figures to the chart, then the height of that spike would become more compelling, but nevertheless, by solar cycles and by history, the next solar maximum of 2013 should drive human behaviour to maximum speculation in commodities and maximum consumer inflation.

Next is a similar long term inflation-adjusted chart, but this time for commodities. Again, I have marked the same commodities peaks in orange and the risk asset cycle markers in black. I have applied waveform again, and again we see a sine wave but with reverse polarity to that of stocks.

Again, it would be an anomaly if commodities had already peaked around the solar minimum secular nominal stocks bottom of 2008/9, instead of around the next solar maximum of 2013.

One more chart – here is the long term Dow-gold ratio. Again, note the sine wave.

It can be seen that at the time of each secular nominal stocks bottoms (black lines), there was a notable spike down in the Dow-gold ratio. In fact, that spike down was sometimes the nominal bottom in the ratio. From those spike lows, the ratio then made a bounce, lasting 2-4 years, up towards the middle trend line, before typically falling again to another low around the solar/commodities peak.

Curiously, following the 2008/9 low, the ratio made only a weak bounce into 2010 before falling again. With the solar peak looming just 12 months away now, the likelihood of an intermittent bounce in 2012 up to the middle trendline, i.e a Dow-gold ratio of 20 (gold falls to 650, or Dow rises to 32,000), looks slim to say the least. Either the weak bounce is a clue that the ratio will keep dropping to a new and final low around the solar peak of 2013, as it did in 1979/80, of perhaps 1-2, or it will make some kind of W bottom, with stocks outperforming currently and then giving way to commodities again into the solar peak, with a ratio bottom of 5 or above. As the evidence further up the page suggests stocks might track overall sideways into the solar peak, the difference between the two ratio scenarios perhaps indicates the scale of a final gold ascent, ranging from meagre (maybe final gold $2000 or so) to colossal (maybe $10,000).

In my recent post of 6th March, ‘Precious Metals’, I detailed the fundamental support for gold into 2013 from negative real interest rates, central bank and investment demand. Disinvestment and greater new supply is forecast to occur after 2014. In short, the window from here into 2013 has the fundamental support to fulfil the final parabolic ascent forecast by solar cycles and historic rhymes. Not only that, but I suggest that the entry point for gold and miners is right now, and here is the evidence.

Gold miners bullish percent index / Market Vectors Gold Miners ratio is at an overbearish level that has previously corresponded to bottoms in gold (see second chart):

Source Stockcharts

PFS’s intermediate term gold indicator is at a buy level, by history:

Source: PFS Group

Rydex precious metals allocations are into the extreme low zone:

Source: Pater Tenebrarum / Sentimentrader

Hulbert gold sentiment in the latest reading is now -15.7. The below chart is taken prior to that reading, but note it will now be down at a level on par with 2008:

Source: Pater Tenebrarum / Hulbert / Sentimentrader