Burned By The Sun

Posted on July 4, 2014 Posted in Indicators, Solar Cycles, Stocks, Uncategorized69 Comments

The evidence for a speculation peak delivered at the solar maximum is better than I could have hoped, yet I’m on the wrong side of it and feeling the pain. When I look back at this post that I wrote January 13, the multi-angled case that I had for a top is still very much applicable. So why have equities gone up not down since?

Firstly, the solar max extended beyond scientists’ predictions from late 2013 to what looks like a smoothed peak circa Feb/March 2014. Not much I could do about that. Since then we have seen solar activity retreat, along with margin debt. Drawing on the history of both combined, we can account for stock indices rising into Feb/March but not since. Some retrace in equities was historically normal, but not these persistent higher highs.

Secondly, it would appear we needed more mania. When looking back at gold 1980, Nikkei 1989 and Nasdaq 2000, it’s clear that the manias were fairly intense. Therefore, the record-breaking stretching of indicators that we are seeing seems appropriate with hindsight. I wasn’t trading in 2000 to experience it. The question is when is it all going to snap? There is evidence of both capitulation and ‘all-in’ which suggest the snap should be close, but more melt-up could yet occur before it finally rolls over.

Thirdly, leading indicators, as measured by narrow money, suggested a pick-up in the economy as of May. As equities were able to range-trade until we reached that point, strengthening data has since given them a tailwind to rally further. Those leading indicators now suggest growth could peak out at the end of Q3. So could equities rally and melt upwards for weeks and months yet? A more detailed look is required, so here goes.

This is how the Dow looks. Volume has been ebbing away. Stocks can rally on thin volume, but those rallies don’t tend to stick. Volume is likely to return once it tips over. The action in the Vix and put/call ratio have an air of capitulation.

Source: Stockcharts

This is how RUT, COMPQ and IBB look:

Source: Stockcharts

If equities were to roll over here, it would be more in keeping with developments in the solar max and margin debt. The Feb/Mar peaks in RUT and IBB, two of the key speculative mania targets, would be maintained and this would fit with the likely smoothed solar max. Speculative peaks have aligned closely with the smoothed solar max in the era of global instant access, whilst certain indices peaked the same month as margin debt both in 2000 and 2007.

If, on the other hand, RUT and IBB break upwards and out in July and COMPQ puts some distance above its Feb/Mar peak, then it would be more anomalous. How do we account for stocks rising whilst leverage declines? Buybacks still strong, CLO leveraged loans still strong in Q2, thin volume rises, short covering? All applicable to some degree, but it’s still anomalous.

The way things stand, the best fit is still that we are in the vicinity of the last peak in a trio that began at the start of the year. That this is a final melt-up in large caps before the roll over. A trading range (primary distribution) before a final leg up was seen in 1929, 1987 and on the 1989 Nikkei. At the reverse end of the spectrum, 2009 saw a trading range before a final leg to the downside.

In all instances, the final overthrow leg lasted around 4 to 8 weeks. The current break out up leg on the SP500 is just entering that range. Averaging the price increases/decrease, we might expect the SP500 to reach over 2000 before rolling over. Earnings season starts next week, others have mentioned 15 July as relevant, and the seasonality of geomagnetism turns down definitively as of July. So maybe stocks can rally a few days more, reach over 2000, and then roll over against an earnings season backdrop.

These six indicators are calling the market down with little scope for delay:

Source: FinancialCrisisObservatory

Source: Barrons

Source: Jack Damm / Stockcharts

Source: Stockcharts

Source: Sentimentrader

So I would be nervous about hedging with longs here, and won’t be doing that.

The next four charts show evidence of the mania.

Source: Stockcharts

Source: Charlie Bilello

Source: Dshort

Turning to fundamentals, equities have front-run a return to normal: 10% earnings growth and 3% economic growth.

Economic data in 2014 has been overall reflective of mediocre growth. Barclays estimate for Q2 growth is 2.7%, add to Q1’s -2.9% and H1 is overall negative. Not on track for 3% annual growth. Data items such as the employment report or financial stress conditions appear superficially bullish, but reflect conditions just before previous market peaks.

Source: Chris Puplava

Economic surprises are still negative for the US, but as stocks have largely ignored the bad items, I think it’s fair to say the perception is they have been largely positive.

Earnings season begins again this week with 75% of companies having issued negative guidance pre-season. The theme of margin expansion not revenue growth continues to dominate into 2014:

Source: Fat-Pitch

Continued disappointment in both the economy and earnings is likely given demographics and debt. So, in short, at some point equities will turn down as their front-running is proven to be just overvaluation, and earnings season presents a chance for that to materialise. A glance back up at the ‘mania’ charts shows that when equities do turn down, they will likely enter a devastating bear market. There has never been a gentle normalisation from such lofty valuations, euphoria, leverage and compound growth extremes.

Some final charts:

Source: Marketwatch

Source: ShortSideOfLong

Source: Fat-Pitch

Source: ZeroHedge

Source: FinancialIceberg

That last chart shows very skewed positioning in crude oil, the message being that it may well tumble going forward. That would be consistent with a deflationary shock rather than an escalation of inflation. I maintain my caution on commodities, aside from precious metals.

Time to sum up. I’m short equities and underwater, feeling the pain. I expect some of you are too, and maybe annoyed for having ‘bought into’ my analysis. Personally, I can’t regret too much, as I don’t think my analysis has been particularly lacking. Rather I have consistently presented a cross-referenced, multi-angled case and the large part of that analysis remains applicable today, despite 6 months having passed since I was first convinced. My distinguishing research thread is the solar cycle, and I believe we are seeing firm proof that the solar maximum does inspire speculative peaks, in a real-time test, but equities now have to turn down, and into a bear market, within a short time of the solar max, before that can be truly confirmed. Frustratingly I’m on the wrong side of it currently, having been too early with shorting, as certain reliable indicators have been overrun by the mania-drive of the sun. Lesson learned. Now it is a practical matter of managing the drawdown. As noted further up, there are several indicators that suggest the turn ought to be close at hand so I do not want to hedge with longs. I have refrained from adding any more short whilst we see if the melt-up steepens further. I will stop some trades if things go crazier yet, and re-open once the market has more definitively turned. But I am not keen to do that as I believe the turn has to be close at hand.

I have two scenarios in mind. One is that the RUT, COMPQ and IBB have to turn down here to honour the Feb/Mar solar/leverage peak. That makes a top fairly pressing and would fit with those indicators calling for little delay. Next week is the descent into the full moon and the start of earnings season, so they could fit into the scenario. The SP500 could reach over 2000 within a couple of sessions to fulfil.

The second scenario is that the melt-up steepens and all indices break out. Positive economic data expected through the summer assists, and maybe the solar maximum has another big burst coming. The issue I have with this continues to be the ‘fuel’ for the rally, given that margin debt is declining, households are already highly exposed, volume is waning, sentiment and euphoria suggest bear capitulation, and various divergences are mature. None of these have stopped the rally yet, so I have to respect that it may still be possible. If all indices do break out then I’d be looking for an eventual top followed by a ‘second chance’ retrace before ultimate steep falls.

Three Peaks

Posted on July 1, 2014 Posted in Commodities, Geomagnetism, Indicators, Lunar Cycles, Solar Cycles, Stocks, Uncategorized97 Comments

By the end of 2013 we saw various divergences emerge that warned of a potential trend change ahead, and still do:

The first major peak point occurred at the turn of the year, around the 2 Jan new moon and at the inverted seasonal geomagnetism peak (i.e twin optimism peaks), as these charts show:

There were inversions at this point in different assets and sectors, and the Nikkei peaked-to-date 31 Dec. Various risk-off, defensive and late cyclical assets and sectors have been the dominant money flow targets since then.

The second major peak was the central peak: where the solar maximum, margin debt and the speculative-targets of RUT, IBB and COMPQ likely made aligned tops, close to the 2 Mar new moon optimism peak:

The third peak, I believe, occurred at the end of June, close to the 27 June new moon optimism peak and the mid-year inverted geomagnetism seasonal peak (again, twin optimism peaks), to complete the topping process:

Indicators showing the three peaks:

The four main US indices aggregated also show the three peaks:

And this echoes what happened in 2000, where there was a first peak around the turn of the year (real Dow, Nikkei and FTSE all peaked 31 Dec), a second central peak around March (hot sectors, margin debt and smoothed solar maximum), and a third and final peak around August:So could stocks then run higher yet and postpone the final peak until late summer or even further out? I can’t rule it out, and it is the main threat to my positions: greater drawdown before it swings definitively my way. However, the trend in leverage suggests further price gains from here are unlikely. The COMPQ is at a suitable double top, whilst the RUT and IBB should make lower highs here to honour the Feb/Mar central peak. Various indicators are stretched to levels that are suggestive of ‘all-in’ or imminent reversal. We have mature divergences seeking satisfaction and fundamental doubts through Q1 GDP, negative economic surprises and Q2 earnings warnings.

The bull case: low rates, benign leading indicators, cumulative-advance declines. But the rhyme with 1937 is still very applicable here in my view. Low rates and a/d breadth accompanied stocks to a high overvaluation peak, like today, front-running a return to normal growth and earnings that didn’t happen, and peaking out with the solar maximum. Q1 GDP has gone some way to puncturing that normalisation assumption again, adding to the other factors being in place. Earnings season could now add to that. Once stocks fall, the wealth effect from a rising equity market will evaporate, helping tip the fragile economy over, as it did in 1937.

Cross Referencing

Posted on June 14, 2014 Posted in Demographics, Solar Cycles, Stocks98 Comments

Wim Grommen argues there have been 3 industrial revolutions: 1780-1850, 1870-1930 and 1940-2000. They terminated with major peaks in the stock market and then gave way to degeneration phases.

Source: Wim Grommen

My perspective is demographic booms in the 1920s and in 1980-2000 made for economic and stock market booms, culminating in mania peaks at solar cycle maxima, and then giving way to prolonged economic downturns and secular bear markets once demographics turned.

A third perspective is that both episodes in history were based on a major run up in debt, or prosperity taken from the future:

In short, the two periods rhyme. Parallels have been drawn between the Great Depression and the Great Repression in terms of severity of crisis, slowness of jobs recovery and bank failure risks. Similarly, central bank intervention became a dominant factor, with ZIRP and emergency spending programmes being required.

However, the Great Depression was much worse in impact when we consider number of failed banks, level of economic decline, drop in prices, and this despite the 2000 asset boom being a more extreme mania than 1929. One key reason for that was the aggressiveness of central bank response this time round, with more flexibility and conviction to draw down harder and faster on prosperity from the future.

Central banks cannot overcome demographic trends and post-mania busts, but they can postpone their full impacts if they are prepared to pay for it, helping stop the devastation being so front-loaded. So, the bear market from 1929 to 1932 was totally devastating and took valuations straight to bottoming levels (shown at -56% below), whilst the 2000-2003 bear was halted at still expensive valuations. 2009 then washed out valuations lower, and I believe we are on the cusp of another bear which will wash out properly. In other words, central banks have succeeded only in phasing the devastation, and the next leg down ought to be the worse: more of a deflationary depression.

Source: DShort

That projection can be cross-referenced with the demographic trends chart further up the page, and is further strengthened at a global perspective by similar demographic trends in Europe and China.

Between 1932 and 1937 a cyclical bull market erupted with distinct similarities to today (see post here). There was one solar cycle between the 1929 and 1937 peaks, and one between 2000 and 2014 (shown above). The 32-37 bull topped out along with the solar maximum in Spring 1937 with no divergence in cumulative advance-declines, which I believe will mirror today: an all-in peak at extremes in valuation, sentiment, leverage and complacency.

Source: DecisionPoint

Here is evidence that we have reached such extremes:

And the bubble-end flag is raised:

Source: Financial Crisis Observatory

And this fits with solar cycle maximum peak-speculation timing.Friday’s session provided a bounce at the full moon. The bounce came at an important level in the large cap indices: a backtest of the ending diagonal or wedge. As full moons often mark inversions, that gives two reasons for stocks to rally again from here. However, by various indicators further declines appear more likely, and such a development would then fulfil the ending diagonal overthrow pattern, whilst ensuring lower highs are maintained in the small caps. That would then enhance the likelihood of all the indices having peaked and the smoothed solar maximum having passed. Emerging new up legs in gold, miners and silver are another clue that could be occurring, whilst geopolitical developments in oil could be a catalyst to end the complacency.

The best cross-referenced case I have currently is that the smoothed solar maximum, RUT, COMPQ, IBB and margin debt all peaked out around February/March. The majority of solar forecasts support this, and we have seen various asset peaks between December and June around this centre. The Sornette bubble-end is flagging again here as sentiment, valuations and complacency are all at the level of extreme that would fit a reversal, plus certain divergences are mature. The selling on Wednesday and Thursday did little to reset the short term indicators that would suggest stocks rally again now.

However, the risk remains that the solar maximum could potentially get stronger yet. Solar scientists have not so far done great in their predictions for this cycle. They are generally united in projecting a waning sun for the rest of this year, but SIDC still continue to run with an alternative model which would delay the smoothed maximum until the end of 2014.

Source: SIDC

Right now sunspots are high again as the sun has leapt back to busy in June after three months of waning, so I continue to monitor. Cross-referencing again, if the smoothed solar maximum were still ahead, then we ought to see large caps hold their breakout here and continue to advance, the other indices break upwards to new highs (invalidating their Feb/Mar peaks) and margin debt reverse its waning trend.

So, as things stand, the highest probability case is for this to be the end of a topping process that began at the turn of the year, with the solar and speculation peak centred around Feb/Mar. If so, then stocks should fall again this coming week, fulfilling the ending diagonal and bubble-popping, and completing the ‘second chance’ lower peaks in RUT and COMPQ. If instead the large caps hold the break and rally upwards, taking the Nasdaq Composite along to new highs in the process, then it would strengthen the case for the solar maximum and peak speculation to be shifted along to at least June, but potentially to even further out in the year. An important week.

Comparison to 1937

Posted on June 9, 2014 Posted in Solar Cycles, Stocks, Uncategorized63 Comments

1937 was a solar maximum, like 2014, and notably the stock market peaked out despite negligible interest rates and with preceding QE, i.e. it was an atypical bull market end: easy conditions, no over-tightening. Stocks were run up on relatively thin volume and low participation to a Q-ratio valuation of over 1, in a 5 year rally. Stocks topped out 1 month away from the smoothed solar maximum without any notable trigger event. They had front-run a significant pick up in earnings and the economy that failed to materialise, and later in 1937 the US economy slipped into recession.

2014: we have had a 5 year rally since 2009, set against ZIRP and QE. Stocks have been run up on low participation to a Q ratio valuation of over 1, front-running a return to ‘normal’ earnings and economic growth that demographics suggest will remain elusive. In 1937 the thin volume allowed the market to rise easier, but then also to fall easier, and we have the same low volume now. Speculation should peak out close to the smoothed solar maximum, which looks most likely to have been around February. Unless the sun get busier yet, then we might expect stocks to be topping out. Evidence from sentiment, euphoria, divergences, leverage and asset allocations suggest this is indeed likely.

The weak economy and exuberant stock market are at risk of a deflationary shock, but failing that, realisation that 10% earnings growth and over 3% GDP growth are not going to happen again is bubbling under the surface. In other words, some surprise bad news could provide the requisite dent in confidence in equities, or stocks could roll over without a strong GDP print for Q2 (release 30th July) or an impressive Q2 earnings season (reporting starts 8th July).

1937 provides an example of stocks topping out on overvaluation despite easy money conditions. Other historic examples of equities front-running to over-valuation were also resolved by a bear market. Timing the top in 1937 came down to pinpointing the peak in the sun’s activity, and I believe this is the same challenge in 2014.

Source: Stockcharts

Source: TheChartStore

Source: DShort

Source: ZeroHedge

Piecing It All Together

Posted on June 8, 2014June 8, 2014 Posted in Indicators, Solar Cycles, Stocks28 Comments

US equities have diverged from fundamentals, earnings and smart money flows for around 2 years now. In all three regards this echoes the couple of years prior to the 2000 peak. The run-up to steep valuations achieved by sharp increase in leverage also matches the run into 2000, and collectively these all indicate a speculative mania which has been historically induced into a solar maximum. Solar cycle 23 maximum = 2000, solar cycle 24 maximum = 2014.

Source: Ed Yardeni

Source: Fat-Pitch

Source: DShort

At the turn of the year into 2014, I believe we began the first phase of the topping process. Nikkei peaked, Bitcoin peaked, money switched into defensives in a trend that continues, with treasuries the best performing asset and utilities the best performing sector of 2014 thus far. Such a turn-of-the-year peak fits with a cluster from history and and I believe reflects peak inverted geomagnetism: a seasonal optimism peak.

Source: Stockcharts

Then at the turn of February into March I believe we saw the second phase of the topping process, with margin debt, Russell 2000, Biotech and momentum stocks all peaking along with the solar maximum. Such a neat confluence would echo March 2000 in all regards, and the technical price action has developed similarly since, as shown by the analogs below. If this is valid, then we should expect Biotech and R2K not to exceed their Feb-Mar peaks, and the solar maximum to wane. Like the dot-com stocks of 2000, small caps were bid up to p/es over 100 into Feb/Mar, and so by valuation, leverage, asset allocation ratios and price analog we saw a mirror of 2000; just the super-sized peak and public interest were lacking due to demographics.

Source: Market Anthropology

Whilst small caps are off their peaks, large caps have now broken upwards to new highs. To bring us right up to date they are trying to cement a break-out on 62% II bulls, 91% NAAIM equity exposure, some 9 month divergences in breadth, low volume, low protection and low volatility. Skew remains in a persistently elevated range, reflecting the risk of a large downside move due to the extreme lop-sidedness in the markets. 1987 and 1929 (similar backdrops in sentiment, valuation, leverage) both produced breakouts from ranges around May for a final 2-month overshoot higher, so there is historical precedent, but to achieve that here and now we would need to print anomalies in some historically reliable indicators and print some new all-time records in bull assets, sentiment and, likely, leverage.

Source: Acting-Man

Source: Not_Jim_Cramer

Source: Financial-Spread-Betting

I believe that US equities are more likely capped on the upside, with a lack of fuel to propel higher, in an ongoing topping process that began at the start of the year. Looking ahead to this coming week, the overbought and overbullish indicators flagging make it more likely the markets will pull back, perhaps to retest the breakout. This likelihood is enhanced by the downward lunar pressure and geomagnetic storming over this weekend.

A final topping price in the June/July window for large caps would fit with the inverted geomagnetic seasonal model above, and as per that model, could then pave the way to ultimate hard falls in Sept/Oct time. A ceiling on large caps price rises here would then likely be compatible with R2K and Biotech not exceeding their Feb-Mar highs. This in turn would then fit with margin debt pausing its decline but not exceeding its high, as it did in 2000 and 2007, whilst stocks completed their overall topping process.

In short, the above analysis is the best fit as I see it. The cap on equities moving significantly higher is key. The big picture for that is demographic, and supporting that are the levels in sentiment, leverage, volume, and asset ratios. The picture is one of very lop-sided extreme bullishness, with naked unprotected longs on leverage. Markets have historically been unable to keep advancing when indicators have reached these levels and the mature divergences now in place ought also to resolve through downside price action, short of printing historic anomalies. Such a cap on price upside would then likely honour the existing peaks in small caps and margin debt and the turn-of-the-year cross-asset peaks that continue to be compelling in association with the solar cycle peak. Drawing on the historic analogs this may mean range-trading for some weeks more yet before a sharp correction erupts.

New highs in small caps, new highs in leverage, a reversal out of defensive sectors and assets, and/or repairs to volume and breadth would make me abandon that ‘best fit’ and conclude that the sun is not yet done with its speculation incitement. Whilst I can’t rule out a more definitive, crazy parabolic to erupt here, as has been typical at historic solar maxima, I just doubt it because of the lack of demographic support combined with the levels already reached in the likes of margin debt, rydex, valuations, investors intelligence and more. If a sharp terminal up-leg can actually occur from here on continued low volume, without the need for a stream of new buyers, then it would be a game of confidence in which the fear of losing out on stellar gains drives prices higher in a feedback loop despite participants knowing it is manic and unsustainable. If that were to occur then it would make the ultimate correction even bigger, but prior to that it would be a challenge to both bulls and bears: play the danger or suffer the drawdown. What seems clear though from history is that leverage would need to accompany such rises, and it appears that leverage already peaked out. However, there is a possible middle path, in which prices can eek out some more gains in June/July whilst not straying too far and honouring most of the above.

My strategy remains the same: I continue to look and attack on the short side for both short term profits and to add to my sell-and-hold big position. Only if it appears that we are entering some kind of terminal parabolic panic-buying upleg, would I then look to hedge by joining the danger game on the long side to some degree. Meanwhile, the risk to those still playing the long side is that the market is vulnerable to some surprise bad news due to the skewing of bulls, bullishness, leverage, complacency and lack of protection.

Fuel Spent

Posted on June 3, 2014June 3, 2014 Posted in Indicators, Solar Cycles, Stocks86 Comments

History in the making for the US stock market, updated:

1. Crestmont p/e valuation only exceeded in 1929 and 1998-2000

2. Q ratio valuation only exceeded in 1998-2000

3. Market cap to GDP valuation only exceeded in 1997-2002

4. US household exposure to equities only exceeded in 1997-2002

5. Euphoria and sentiment composite readings only exceeded in 1997-2000

6. Third longest bull market in history

7. Third longest duration above 200MA

8. Margin debt to GDP and net investor credit at all time extremes

9. Skew readings cluster highest ever

10. Complacency, negative divergences in breadth and negative divergences in defensive sectors/assets all resemble peaks of 2000 and 2007

These various measures collectively suggest that the bull market is mature, that stocks are expensive, that investors are all-in and that we are looking at a major top. The only bigger mania in history was 2000, which, in contrast to now, had a demographic tailwind.

There are three ingredients for a super peak: a solar maximum inspired speculation peak, a demographic peak (new buyers buying), and a leverage peak (same buyers buying more). 2000 had all three, but 2014 lacks the demographic tailwind, and for that reason we should not expect to reprint 2000’s all-time extremes.

Over the last 18 months we have seen the requisite evidence of a speculation mania, inspired by the solar maximum. During that period we have seen the stock indices diverge from earnings, fundamentals (economic), and smart money flows, and we have seen sharp escalation in leverage (margin debt, Rydex leverage). We reached dizzy valuations in small caps, biotech and social media, and by various measures, major stock index valuations already exceeded 1929 and 1968 peaks.

On current evidence it would appear the solar maximum peaked out along with the main speculation targets around February 2014, which is also when margin debt and net investor credit balances reversed.

If stocks were to move materially higher from here, then we would need to see an extending solar maximum, a further reversal in leverage to print new extremes, and/or a stream of new buyers.

We see evidence for the demographic headwind in shrinking trading volumes, and if we couple that with the readings in household exposure to equities, fund manager allocations, and institutional versus private buying, which suggest saturation, I suggest it is unlikely that we have the fuel for another significant move higher in ‘new buyers’.

I then look at the extremes, spike and reversal in leverage and it is unlikely that increased ‘buying-on-credit’ can provide the fuel for another significant move higher from here. So even if the solar maximum were to extend beyond expectations then I suggest it is highly unlikely that equities would be bid up significantly higher from here, as if this were 1928, as both ‘more-buyers’ and ‘more-leverage’ look exhausted.

Since 2014 began, relative performance of utilities and treasuries, breadth loss in equities, and developments in sentiment have all echoed previous stock market peaks. These warning signals are now mature and add to the likelihood of stocks breaking lower from here, not higher. Not only that, but the combined settings of leverage, complacency, euphoria and levitation suggest that we are on a cliff-edge heading for a sharp crash.

I’ve added short again on US stock indices as I continue to see a historic opportunity at hand, and I believe the evidence suggests there is little fuel for a significant leg higher. Rather, the evidence suggests that we are in the last gasp of a topping process.

Perfect Set-Up?

Posted on May 22, 2014 Posted in Biotech, Indicators, Russell 2000, Solar Cycles, Stocks133 Comments

Speculation increasingly looks to have peaked out exactly at the solar cycle maximum again, as demonstrated by these 3 charts:

If you have doubts about that beautiful triple cross-referenced set-up, then there are plenty of supporting indicators to shore up confidence:

Once again: I am not an advisor, so don’t follow me. I see as perfect a set-up as I will ever get for a medium-long term trade, and the market is giving me plenty of time to position optimum short. If I wanted an opportunity to make a life-changing amount of money, here it is, and so I am positioned accordingly. Why front-run the market at all? Timing a top is very much possible, and not the game of fools: proponents of that mantra just don’t know the tools. My strongest case short was for the RUT and therefore the home of my biggest shorts – it is already down over 10%. My guess is some traders now see a potential short in that index but are waiting for a retrace that maybe never comes. The wider indices are an elastic band at snapping point. Some traders will be nimble enough to catch it, others will stand like rabbits in the headlights. Those still playing the long side at this point are the dumb money: not just my opinion but as evidenced in indicators.

A historic opportunity, which I hope we will all be celebrating together.

Markets Update

Posted on May 20, 2014 Posted in Indicators, Solar Cycles, Stocks48 Comments

A little rally in US equities Friday-Monday, keeping the market in bull-bear limbo. Volume was bearish, relative performance in defensive sectors was bullish. The bigger picture remains the same, with various divergences suggesting bearish resolution. Shown here is high yield versus treasuries, new highs / new lows, and consumer discretionary versus staples:

The even bigger picture continues to show a historic opportunity on the short side.

On the flip side, leading indicators point to a pick up in the global economy as of now through the summer, which coincides with the more supportive geomagnetic seasonal period, and economic surprises have turned upwards in the US and Japan.

So far in May, sunspots look set to continue their monthly waning trend from their peak in February. Should this continue, not only should the excess speculation be pulled from stock markets, but the ‘growthflation’ in the economy that typically peaks around the solar maximum should also ebb. In other words, the stock market and economy should fall together.

We currently see various commodities at key decision points, in the noses of technical price triangles, such as oil and silver. Are they going to break upwards and outperform as late cyclicals as equities turn down, or are they going to break downwards as deflationary post-solar-maximum forces take over? Either way, their predicament is suggestive of a big move ahead in assets.

Returning to equities, whilst I cannot rule out higher prices in the near term, the stronger case is that the markets already peaked out and that stocks tip over again this week. Should that short term prognosis prove false, then the medium and longer term cases are unequivocally bearish, and so I stick with my strategy of selling into strength. The safety is on the short side, time is ticking towards the elastic band snapping in large caps.

Fake Out Top

Posted on May 16, 2014May 16, 2014 Posted in Geomagnetism, Indicators, Lunar Cycles, Solar Cycles, Stocks88 Comments

By my work, that completes the cyclical stocks bull market peak.

The solar maximum is looking likely to have run from Dec 2013 through to April 2014 (smoothed peak ~Dec, monthly peak ~February, daily peak ~April). The real inflation-adjusted Dow peak stands at 31 Dec, along with the Nikkei, at the new moon. Various cross-asset measures also inverted at that turn-of-the-year, which has been historically potent, as the inverted geomagnetism peak. The Nasdaq and Russell 2000 peaks were at the turn of Feb-Mar, also at the new moon. The nominal SP500 and Dow peaked-to-date at the full moon of two days ago, making for an inversion.

If the solar maximum, inverted geomagnetism peak, and lunar phase extremeties rule the markets, then all four indices are now likely in bear markets, and whilst we won’t know that for sure for some time, we will know soon enough if those peaks are taken out.

It is the cross-referencing of the timing measures (solar max, geomag, lunar phase, DeMark) with the technical and fundamental indicators (valuations, sentiment, equity allocations, leverage, divergences, cross-asset performance, bull market measures, demographics) that makes this so compelling. The technical/fundamental indicators suggest the top timing should be now (Dec-May), the timing measures in turn suggest the indicators ought to be flashing red in that window, and they are. Indicators on red began to accumulate towards the end of 2013 and the last few recently fell into place: a decline in margin debt, a waning in the monthly sunspot count, a snapping of the parabolics (biotech, internet), DeMark exhaustion.

For these reasons, it is unlikely that the markets can extend longer or higher, and whilst I cannot rule out higher prices, the attempted break-out by the large caps of several days ago was an important test that looks to have failed. I still remain confident that waterfall declines will erupt, as the historic leverage is unwound, but the question is when. I was too early in their prediction as the solar maximum extended beyond solar scientists’ expectations. Assuming the solar cycle continues to wane from here, then I have two possibilities in mind. The one is those sharp falls erupt imminently, once technical price supports are broken. The other is they erupt around Sep/Oct at the inverted geomagnetism seasonal low, which has hosted most of the major historic waterfall declines. I am specifically talking about 3-4 weeks of panic selling, differentiating that from a more measured bear trend.