On The Attack

Posted on May 15, 2015 Posted in Gold, Indicators, Macro, Solar Cycles, Stocks412 Comments

Phasing more into long gold, short Dow, and opened ETF agri long. Don’t follow me… here is my case.

Gold has been making a long base with rising underlying strength since July last year.

Source: Stockcharts

US stocks have shown an underlying decline over the matching same period, as evidenced by stocks:bonds, stocks:dollar and two measures of breadth.

Source: Stockcharts

That turning point in both fits well with the solar maximum, a speculative peak.

The latest attempted breakout in equities has much in common with the July peak in 2011, before the sharp falls. Volatility, momentum, strength and breadth all suggest the breakout should fail.

Source: Stockcharts

Source: Gavin Parks

Geomagnetism continues to bother and is another telling divergence ripe for resolution, and its overall pattern is reflected in a variety of underlying stock market indicators.

Source: Stockcharts

The US economy is in big trouble. If you haven’t already seen, Zero Hedge presented 7 charts arguing that the US is already in recession, to which PFS group then countered with 7 charts arguing against. I’m sure you all know to take ZH with a pinch of salt (‘fear sells’) but the charts they reference can be be seen at the likes of Alhambra and DShort on more neutral ground.

My input: the ZH charts are ‘true’ and show the US economy in deep water, whilst the PFS charts are also ‘true’, but on close inpection they mainly historically flagged once stocks had turned. In short, the stock market is precariously holding things together and is the only defence from outright disaster (as things stand) in a very fragile state of affairs. What is beyond argument is that certain economic data items are extremely ill whilst stocks are at all-time highs. In my opinion, that disconnect ‘beats’ any cherry-picking by either side and makes for a looming sharp equities correction.

Source: Not_Jim_Cramer

Source: WSJ

ETF Agriculture shows a similar basing to gold, with historically low current prices in various soft commodities set against a backdrop of a new El Nino and record global temperatures, which historically led to price rises.

Source: Callum Thomas

Source: NOAA

I can’t rule out equities pushing on a little higher yet here before finally rolling over, but I see it limited to days/weeks due to all the telling flags. So my plan is to phase in rather than load in in one go, and that applies to all 3 markets.

All Change At The Solar Max

Posted on April 19, 2015 Posted in Commodities, Indicators, Macro, Solar Cycles, Stocks273 Comments

1. The solar maximum peaked out mid-2014

2. Geomagnetism intensified since then

3. That’s twin negatives for risk assets, reflected in the drop in commodities

4. It’s also twin negatives for the economy, reflected in data surprises

Source: Charlie Bilello

Source: Alhambra

5. And in earnings

Source: Factset

6. And in Fed money printing

Source: Spiralcalendar

7. And deteriorating financial conditions

Source: WSJ

Source: Bloomberg

8. Although nominal stocks continue to appear to be in a bull market, measured versus bonds and dollar the top appears to have formed at the same time as all the above

Source: Stockcharts

9. Plus a look at breadth, volatility and risk appetite also suggests a reversal has occurred

10. European stocks appear to be making a blow-off top at high valuations

Source: Gavekal

11. And forward earnings for all the main regions bar Japan (the only major that has a positive current demographic window) are negative

Source: Shortsideoflong

In short, I still see strong evidence for a reversal in financial markets and economy fitting with last year’s solar maximum, with the final piece of the puzzle being the missing sharp drop in nominal equities. Whilst Friday’s sharp down candle serves only to keep us in a sideways price range, it was another failure high attempt in US equities and I expect will form part of the final roll over in stocks, to fulfil what all the charts above are telling us. Sentiment and allocations remain maxed out:

Source: Charlie Bilello

Source: Stockcharts

Big Picture USA

Posted on April 5, 2015April 5, 2015 Posted in Gold, Indicators, Macro, Solar Cycles, Stocks664 Comments

The solar maximum peaked out mid-2014:

Source: Solen

Speculation should peak out with it, and that appears to have been the case with trend changes in stocks, commodities, dollar and treasury bonds:

Source: Stockcharts

The speculative target into the solar maximum was primarily equities, as evidenced in allocations, sentiment and (here) valuations:

Source: DShort

Stocks are now at risk of a sharp reversal, due to the twin supports for lofty valuations of earnings and (here) economic data having turned negative:

Source: Not_Jim_Cramer

However, analysts are predicting both will improve as 2015 progresses. The first chart shows they have been downgrading Q1 GDP forecasts whilst slightly upgrading the next 3 quarters. The second chart shows they expect a significant recovery in earnings in H2 2015:

Source: FTSource: Charlie Bilello

Narrow money trends are also predicting an economic recovery by H2 2015, in part due to the benefits of lower commodity prices.

Source: Moneymovesmarkets

Counter to that, a range of economic data has already dropped into recessionary levels:

Source: Alhambra

The latter two charts play into the global picture, which is one of dwindling world trade:

Source: ATimesSource: Stockcharts

Financial stress in the US is not yet apparent but has crept up in a way similar to 2011 pre stock market falls:

Source: Charlie Bilello

Supportive to the bull case still are cumulative advance-declines, outperformance of certain cyclical sectors and small caps in 2015, and a current rechallenging of 2014 highs in both leverage measures of margin debt and (here) leveraged loans:

Source: Stockcharts

However, most other indicators show continuing degradation and divergence.

Source: Stockcharts

So, piecing it together, I believe the key is whether earnings and the economy do recover again or whether we are in the early part of a negative spiral. Solar theory would argue the latter, whilst analyst opinion favours the former. Either the sharp falls in commodity prices are deflationary and recessionary, or they are to become a new form of easing as 2015 progresses, with positive benefits for the economy and most sector earnings.

I suggest it is unlikely stocks will advance whilst the reporting of Q1 earnings and economic data plays out. Rather, at such lofty valuations, we will need to see evidence of the anticipated improvement first. That sets the scene for either a meaningful correction here, or a sideways range trade in the weeks ahead.

My opinion remains the same: we are in the last gasps of a topping process in equities. We see ample evidence in both indicators and economic data of the shift in behaviour post-solar-max. The negative feedback looping is underway but needs a significant drop in equities to complete it. That should now come to pass, post Equinox and post-second-chance (last post). April is clearly a window for a meaningful drop, set against earnings reports beginning on Wed and anticipated further bad economic data.

If somehow stocks can hold up and range trade over the next several weeks whilst early evidence of a pick up in the US does start to trickle through then maybe this mania can continue for even longer. But I still find it extremely difficult to make a case for that.

The SP500 now needs to break down beneath the March lows. The divergences suggest this should occur.

Source: Stockcharts

Meanwhile, the commercial positioning on gold suggests a rally, which would fit with a drop in equities:

Source: Ispyetf

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.

Behold

Posted on February 14, 2015 Posted in Gold, Indicators, Solar Cycles, Stocks344 Comments

New highs in US equities despite…

1. Valuations on a par with the 1929 peak

2. Sentiment extreme lopsided (II 3.5x bulls vs bears, NAAIM 84% bulls)

3. Allocations to equities on a par with 2000 peak (household, fund manager, Rydex)

4. The solar maximum speculation peak being behind us in April 2014

5. Leverage having peaked out around then (margin debt Feb 2014, leveraged loans July 2014)

6. Multiple negative divergences in place 6-12 months (shift to defensives, breadth, financial conditions)

7. Economic surprises negative

8. Leading indicators negative

9. Earnings growth forecasts for H1 2015 negative

10. Buybacks peaked in Q1 2014

This is already so anomalous that I can’t offer much more by way of analysis. If there is a blow-off top about to unfold, then what is the fuel, given the extremes in allocations and sentiment and the stall in leverage and buybacks, plus the demographic headwind making for a shrinking investor pool? I believe it would have to come from leverage breaking its 12m ceiling and going to all-new extremes. But why would that occur, given the state of economic and earnings indicators versus valuations? And given we are approaching 12 months post solar maximum? It makes no sense.

I can still only side with logic, which says the real peak was mid-2014 and that this still represents last gasps of a topping process. That would mean nominal stock indices make marginal new highs here but then break down.

On the bullish side, there have been a couple of supportive developments. Cumulative advance-declines have broken upwards decisively, as they did in February 2014. Plus, cyclical sectors have taken over outperformance from defensive sectors now in 2015. These two developments alone certainly don’t overcome the list above, but, if stocks can now hold up whilst we go through the seasonal lows of March and April then we could perhaps again see economic surprises and earnings start to turn up again. In short, we could continue to see the market advancing in positive economic and earnings periods but not falling in negative periods despite the record lopsidedness, negative divergences and so on. Go figure.

That would in turn likely postpone the bear kick-off until the Autumn/Fall. I can’t compute that, but we have to consider the majorly anomalous here. Of course this can’t continue indefinitely. If stocks do somehow take off again here, then valuations, leverage, allocations and divergences will become yet more extreme, perhaps all-time extreme, making the subsequent crash even bigger and even more pressing.

But survival is key. So I have stepped aside and taken off my positions whilst we see how price action now unfolds. If we see a blow-off mania now somehow take hold, then I don’t want to hold short through that. If, instead, logic reigns, then stocks should only make marginal highs here on negative divergences and then be dragged down to new 2015 lows. We have the new moon on the 18th Feb into which I expect stocks to rise. Then we have the seasonally weak window into March and April. So either stocks make marginal new highs and then fall post 18 Feb into Mar/Apr to new 2015 lows, or they hold up and lift off through those seasonal lows heading for even higher highs in the summer. I will be looking to add back positions on evidence of the former unfolding.

Cross-market, gold’s behaviour will be another tell. If the bottom is in then gold should start to take off again here, making for a compelling higher low. Continued weakness and even a new low would postpone the whole process.

I still can’t regret my analysis, because it is as comprehensive and multi-angled as I could make it, and I still think the only logical outcome is that we do indeed look back on a topping process that kicked off at the start of 2014 but took a long time to play out. I can’t compute anything else, because I bring together such a wide range of angles and draw heavily on ‘fact’. However, it’s been a humbling 12 months and there is not yet sufficient clarity or hindsight to really diagnose it.

I host the website but you guys have created an excellent board, which is always a great read. Different opinions and approaches but there is a good balance and a lot of quality input. So thank you to all who comment.

So, let’s see now whether stocks break out decisively or fail at marginal new highs, whilst watching how gold performs.

Not So Different After All?

Posted on February 6, 2015 Posted in Indicators, Solar Cycles, Stocks344 Comments

Comparing the 2000, 2007 and 2011 peaks to 2014-15.

Taking 2000 first, as that was the last solar maximum pre-2014 and therefore the most relevant, I’m using several measures that stretch back that far and show divergences pre-peak, namely Nasdaq breadth, 10 year treasury yields, cyclical to defensive sector performance and all set against the Dow Jones World stock index. Clear topping process progression and timings are labelled on the chart:

Source: Stockcharts

Now here is 2014-2015. Amazingly it is almost identical in progression and timings in both the stock index and the indicators.

The only difference is that the July/Sept peaks in 2014 exceeded the solar maximum peak in nominal terms whilst in 2000 they were lower peaks.

Here are the 2007 and 2011 peaks to complete the comparison. No solar maximum in these two years, but otherwise a similar topping process with leading divergences in the indicators and a notable peak in July every time.

With margin debt for December finally released here is the picture for net investor credit:

Source: Doug Short

We see another leading indicator for the 2000, 2007 and 2011 peaks, varying from 2 to 6 months on the monthly SP500. Currently we have a 4 month divergence versus the December 2014 existing SP500 monthly high, fitting in the historic range.

Lastly if we compare stocks:treasuries and stocks:dollar, we see additional leading indicators in a relative defensive shift with 0 to 3 month lead time for the 2000, 2007 and 2011 peaks.

Both measures show a 5 month divergence on our current December 2014 Wilshire 5K high. Yet both measures tie in exactly with when the Dow Jones World made its peak-to-date, July 2014.

All this strongly suggests the ‘real’ peak in stocks occurred back in July 2014. So how can we square fresh nominal highs in European indices and several US stock indices challenging for new all-time highs again? We can square it if European indices are making a final blow-off top and if US indices fail to make new highs here. Back in 2001 the DJW index turned down again at the start of February, heading for Mar/Apr lows, and that fits with the geomagnetic seasonal roadmap that I have presented before. It really means stocks must be repelled back down here, whilst gold ought to break upwards from its consolidation of the last 2 weeks. Drawing together time and price factors I suggest we have just a few trading days for this to transpire. As per my last post, if price and indicators start instead to break upwards then the picture changes and breaks with the logical case.

The Old Rules

Posted on February 4, 2015February 4, 2015 Posted in Indicators, Solar Cycles, Stocks113 Comments

Extremely stretched valuations, highly lop-sided sentiment and allocations, excessive leverage, long-standing negative divergences, persistent shift to defensives, negative leading indicators, disappointing earnings, declining financial conditions: these are some of the ‘old’ rules that dictated stock market peaks. Yet, many months in their presence, equities still haven’t dropped in any meaningful way.

Looking at the SP500, there has been no fall of even 10% in the last 2 years.

Source: Rachael Shasha

Yet those indicators/rules would historically dictate a fully-fledged bear market. Add in the smoothed solar maximum timer, which now looks fairly definitively April 2014, and the continued levitation is even more surprising.

Source: Solen

Do the old rules still work? I still believe they have to. There are too many different angles amongst them for them to now all be redundant, even with central bank intervention distortion. But this really feels like the last chance for them to hold.

A selection of global stock indices shows what may turn out to be a long distributive topping process, if this isn’t to be a consolidation by time.

Source: Stockcharts

A selection of risk-off negative divergences in play for a year would echo this:

If we argue the correction or ‘bear’ has been by time not price then such indicators would now be poised to break upwards again. The problem with that angle is that there has been no resetting of allocations, leverage, valuations, sentiment and various negative divergences. Corrections by time gradually neutralise such indicators to refuel the bull, yet this has not happened.

A look at breadth shows what appears to be an initial attempt at a stock market peak at the start of 2014, followed by a breakout to the upside. We have then had a second attempt at a peak in the last 6 months, but potentially NYAD is showing another breakout which would reset the topping attempt again.

This would fit with developments in European stocks indices which are breaking out and look positively bullish. Potentially, the Eurozone’s QE and improving leading indicators could keep US stocks from falling significantly here in early 2015, as we could argue the US did for European stocks in 2014.

The big picture still looks like this: a definitive trend change in major asset classes in mid-year 2014. But we need to watch to see if the up-ticking of the last week could potentially spell a break from, or pause in, the downtrend.

US economic surprises versus valuations looks like this. See how stocks largely ignored a breakdown in economic strength in the first half of 2014. Will they ignore the current trip into the negative? Also note how valuations have risen at their steepest rate since the October 2014 low: the move up in prices has been very much counter-earnings.

Source: Yardeni

Draw it all together and I still have to favour the ‘last gasps of the topping process’ angle. I refer to my 3 key dates of the turn of Jan 2014, the end of June 2014 and the end of Dec 2014 as they three key milestones in this, all anchored to the 2014 smoothed solar maximum.

However, if equities (meaning US equities joining European) and indicators break upwards again, then it would raise the prospect of a final blow-off top, a parabolic termination that could perhaps take us to mid-2015. I base this on the 1929 experience post-1928-solar-max, the failed topping attempt in breadth in 2014 perhaps failing a second time here, and the geomagnetic seasonality of the markets. Something like being here (circles):

I just still find that very difficult to make a case for, given how super-stretched sentiment, allocations, valuations and leverage already are. From where is the fuel for another significant leg up?

The next few days are key. Did yesterday’s full moon mark an inversion top from which we now decline, keeping US indices from making new highs, whilst European indices in hindsight will show a blow-off top? Or do we now have a clear 2 week period of typical strength ahead into the new moon making for a comprehensive global breakout in equities? If the latter I would expect gold would be repelled downwards again.

S O L A R C Y C L E S

Category: Solar Cycles

On The Attack

All Change At The Solar Max

Big Picture USA

End Of The Mania

ZIRP vs Solar

State Of The Markets

Behold

Not So Different After All?

The Old Rules