Category: Stocks

Risk Asset Cycles And Gold

Posted on Posted in Commodities, Solar Cycles, Stocks23 Comments

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

Dow at 260,000 by 2032

Posted on Posted in Solar Cycles, Stocks12 Comments

Secular tops in US stocks were 2000, 1968 and 1937 – 3 solar cycles apart (roughly 33 years). Secular nominal bottoms in stocks were 2009 (expected), 1975, 1944 and 1913 – 3 solar cycles apart (roughly 33 years). Secular tops in commodities were 1980, 1948 and 1918 – 3 solar cycles apart (roughly 33 years). Secular bottoms in commodities were 2000, 1968, 1938 and 1906 – 3 solar cycles apart (roughly 33 years). All these tops and bottoms fell very close to solar peaks and minima.

Is there anything special about 3 solar cycles, 33 years? Yes there is. Every 33 years the lunar calendar and solar calendar converge. A lunar month isn’t quite the same as a solar month, and so new moons and full moons gradually advance through the seasons, returning to where they began every 33 years. Most ancient calendars are luni-solar calendars incorporating lunar months plus additions to make it fit the solar year too, so societies engaged both. My detailed guide, Trading The Sun, reveals the influence of both lunar cycles and solar cycles on people, the financial markets and the economy, and the synchronisation of humans and human systems to cycles of nature. Rhythms in stocks and commodities – or more specifically human risk appetite and buy/sell patterns towards them –  have synchronised with this luni-solar cycle.

If tops and bottoms fall close to solar maxima (which are roughly 11 years apart) and solar minima (ditto), and risk assets cycle every 3 solar cycles (roughly 33 years), then we should see these cycles in spectograms of stocks and commodities. Here is one commodity, wheat, and one stock index, the Dow Jones, under spectrogram analysis, revealing actual cycles confluences around both 11 and 33 years (as well as the other interesting highlighted cycles).

Source both: Sergey Tarassov

Below is the Dow Jones (DJIA) stock index in the long term view, marked with the secular tops and bottoms in stocks and commodities listed above.

Inbetween the secular tops were interim stocks tops, one being the Nikkei peak. It’s fairly clear from this Dow chart, that the interim tops are not secular tops, but the trend continues through them, with the exception appearing to be the massive peak (and massive fall) around 1930. Most analysts consider this extreme as a secular top and a subsquent secular bottom. But the comparisons suggest the secular top was around 1937 with a wild overbuying and overselling episode effectively cancelling each other out en route to the 1937 peak. For another less extreme example, the 2007 nominal stocks top exceeded the 2000 top but by other measures (such as valuations) we can identify that 2000 was the secular top for stocks.

Using solar cycle anchoring, secular US stocks bulls need redefining as around 24 years in length, or roughly two solar cycles (1976-2000, 1944-1968 and 1913-1937, shown by black arrows) beginning at the nominal low of what we currently consider to be a secular stocks bear, which falls around the solar minimums (shown by the red circles). That means a new secular stocks bull of around 24 years began at the turn of 2009 (that should be the nominal low) and should continue to around 2032. US demographic models predict a secular stocks bull lasting to 2032-2036, which provides a compelling cross-reference:

Secular commodities bulls need redefining as around 12 years in duration, or roughly one solar cycle (1906-1918, 1938-1948, 1968-1980, 2000-2013 (expected)), with some overlap with stocks (e.g. the new secular stocks bull began at the turn of 2009 whilst the secular commodities bull that began around 2000 should last to 2013). A complete risk assets cycle, incorporating both full commodities and stocks  secular cycles, lasts 33 years, the distance marked between the blue lines on the long term DJIA chart above.

Look at the black arrows on that chart, marking out the secular stocks bulls. Note how they increase in steepness as the last century progressed. Note also that this is a log scale chart. That suggests the secular bull lasting from 2009 to 2032 is going to be jaw-dropping in nominal terms. As it happens, the nominal increases in each historic secular bull show a pattern (5-fold, 10-fold and 20-fold, in order) that suggests it may terminate around 2032 with a 40-fold increase from the low that occurred around the turn of 2009. That gives us a target of Dow 260,000.

If that seems a little far fetched, then know that it is achievable with an average 16% compound return per annum, and in the last 24 year bull of 1976-2000, the Dow averaged an annual compound return of 12%.

Inflation also plays a key role in increasing nominal returns, and if we look at the trend in undoctored inflation (Shadowstats figures), then other things being equal, higher inflation alone could drag up the average annual return from 12% to 16%.

Underlying source: Dshort

Inflation aside, the ‘opportunity’ to achieve a record return lies in exponential technological evolution, whilst the ‘threat’ lies in peak resources. The long term outperformance in real terms of equities versus commodities reflects technological evolution – the human value-add in making amazing things from raw materials and fossil fuels. Railways, electricity, computers and the internet all provided paradigm shifts in efficiency and cost reduction, enabling us to produce more and for less. The trend in technological evolution is parabolic, suggesting we should see the greatest intensity yet in paradigm shifts during the next secular stocks bull, potentially from the areas of nanotechnology, biotechnology, artificial intelligence, space exploration, geonengineering and renewable energy.

The evolution of artificial intelligence is captured in this computing power trend chart. The next secular stocks bull should see a computer match the intelligence capability of a human.

Source: Ray Kuzweil

Think that the last secular stocks bull delivered the internet, mobile phones, DNA identification and other paradigm shifts. With parabolic technological progress, the next secular stocks bull should deliver a higher intensity of leaps. The threat is that we are heading towards peak energy and peak resources in the first half of this century. Essentially, technological evolution has to deliver paradigm shifts in resources and energy, to delay peak limits, such as nano-engineering at the molecular level to make any substance, and delivering large scale renewable energy solutions. Here is the global energy forecast out to 2030, by BP:

Source: BP

Coal and oil will flatten off as we head towards exhaustion, with more abundant gas partly covering, but with renewables, nuclear and hydro the main expected growth areas fulfilling global demand. It is feasible therefore that technological evolution delivers enough to push out total energy and resource limits to a future secular commodities bull in the 2030s/40s, and in so doing enable exponential technological advances to deliver revenues, efficiencies and cost reductions the drive a secular stocks bull to new all time average annual returns in the window through to 2032.

Let’s look another way at a likely Dow target – the Dow-Gold ratio, below. Note how there is a long term trend in the Dow growing in worth versus gold. Again, this represents technological evolution and human value-add. Continuing the trend, the next secular stocks bull may peak at a ratio of around 80 around 2032. If the Dow was at 260,000, gold would be $3250.

Is gold at $3250 a reasonable target for 2032? By historical rhymes and solar cycles, we should see a gold parabolic ascent and blow-off ahead in a secular commodities bull finale in 2013, followed by a fast retreat and then overall sideways tracking (as shown below) during the course of the next secular stocks bull. For example, a parabolic ascent to $6000 then a collapse to $3000, before overall sideways tracking into 2032.

Underlying Source: Saville/Laird

So let’s see how gold completes this secular bull, but just over $3000 by 2032 doesn’t appear too much of a stretch.

In summary, by extrapolating trends in (i) secular stocks bulls durations and magnitudes, (ii) compound returns, (iii) inflation, (iv) technological evolution and (v) the Dow-Gold ratio, I propose that the Dow index at 260,000 by 2032 – although initially appearing fanciful – is instead a realistic target.

This Week

Posted on Posted in Stocks3 Comments

Into my anticipated turn window, from last Friday to this coming Friday, and with increasing evidence for a correction in equities.

Geomagnetic disturbances perists, making a significant divergence with the S&P500.

Citigroup Economic Surprises continue to fall away, which has historically implied a correction, or sideways consolidation.

Source: Bloomberg

 The S&P500 is out of its upper bollinger band.

Source: Market Anthropology

The Vix is at a level that has recently implied a correction. However, note also that there is a lower historic level that Vix could fall to, between 10 and 15, that was a feature of strong bulls.

Source: Slim Beleggen

 The CS Fear Index is at an exteme high and has tipped over ahead of the market. Both aspects of this barometer have previously led to a correction in equities.

Source: Bloomberg

Dax sentiment is back to the high extreme bullish zone too. In short, the case is building for a correction and the time window is appropriate too. What form the correction or consolidation takes, we will see. Due to the trend change in treasury bonds, money flowing out of the safe haven may buy up stock dips. I therefore don’t wish to short. My favoured scenario is for stocks to consolidate overall sideways for a period, whilst money flows favour the unloved precious metals and miners for a while.

Trading Update

Posted on Posted in Bonds, Commodities, Stocks6 Comments

Treasury bond yields added to their breakout, making for what looks like a significant change of trend. Money should accordingly flow into pro-risk. My short treasuries trade is now in the money.

Source: Stockcharts

Looking at the 30 year bond, the initial target would be a return to the trend line:

Source: Stockcharts

Pessimistic sentiment is at an extreme in gold miners, and gold itself is very oversold by PFS’s intermediate term indicator, an indicator that I have found reliable for entry points in the past. I have added to my gold long position and opened a long gold miners ETF position.

Source: PFS Group

Turning to equities, Apple made a third attempt at a top yesterday, and maybe third time is the charm:

The stock indices held up despite that, but from today into next Friday we are into a likely turn window, drawing together my models, Bradley and the Equinox. Geomagnetism also continues, making for a significant gap between SP500 actuals and my model. The Dax has also moved above the model.

We see a partial set of overbought and overbullish indicators in stocks. Ideally a push a little higher into next week would give us a more complete set and make for a more compelling turn in the turn window. Here is bullish percent over call/put – into the excessive zone again:

Source: Stockcharts

I have sold part of my remaing stock indices long position today. I will sell the remainder later next week if the stock market can push on further.

I don’t see evidence of a major top in stocks here. But with Economic Surprises continuing to fall away, geomagnetism pulling the models down, and based on historic rhymes, a rounded top or flatting out or consolidation is likely. The Vix is down at its bottom bollinger band, potentially ripe to pick up again. Given the likely trend change in treasuries, reflecting the economic pick-up, stocks will remain attractive. But with gold and gold miners at pessimistic and oversold extremes it seems likely that soon we see some money flows that way. Even if you believe that precious metals topped out last year, then they should enjoy a rally, as per this post-mania parallel chart (chart from several weeks ago – silver is around 32 at the time of writing):

Source: Willem Weytjens

I maintain precious metals are due for more than just a bounce though, and will have more on this next week.

Solar Minima And The Financial Markets

Posted on Posted in Commodities, Solar Cycles, Stocks8 Comments

If the mass human excitability that Tchijevsky identified leading into and around solar peaks translates into maximum risk-taking, speculation and buying in the financial markets, then might the mass human apathy associated with solar minima translate into conservatism, safety and maximum risk-asset selling?

The last solar minimum of December 2008 is shown below. Note that despite the official dating, solar minima are in reality drawn-out rounded affairs lasting a couple of years. The March 2009 bottom occurred in this period.

Could that be the nominal bottom of the stocks secular bear? I have advocated that it should be, using history as our guide, but interestingly, I have found that the nominal bottoms of the last 3 secular stocks bears all occurred not only in the middle of the secular bears, but all within 2 years of the official solar minima.

Here is 1932:

Source: Sergey Tarassov

Taking this further, I have established that within 2 years of each solar minimum over the last 100 years we have experienced panics and crashes if not outright secular nominal bottoms, as shown:

First, the stock market panic of 1901 (solar minimum Feb 1902). Then the financial crisis of 1914 (solar minimum August 1913) which involved closing key global stock and commodity markets for several months. Had they not been closed, it is expected the crashes would have been worse than 1929.

We had a crash in 1921 in stocks and commodities (solar minimum August 1923), a commodities crash in 1952 (April 1954 solar minimum), the sterling crisis in 1964 (October 1964 solar minimum), Black Monday 1987 (solar minimum July 1989) and the Asian financial crisis in 1997 (solar minimum May 1996). All saw massive falls in risk assets.

We reached the nominal secular stocks bear bottoms in 1932, 1942 and 1975, corresponding to the solar minima of September 1933, February 1944 and June 1976 respectively.

Forecasting ahead, I therefore expect that the next cyclical stock market low will be higher than March 2009 and that late 2008 / early 2009 bottom will turn out to be the nominal secular bottom, falling close to the solar minimum. Also forecasting ahead, I expect another crash or panic sometime in the window 2018-2022, around the next solar minimum. Drawing solar cycle predictions together, I expect a secular commodities peak in 2013, a cyclical stocks and commodities bear 2013-2014, a new secular stocks bull to erupt 2014/5 and make a 3.5 year up cycle on to the verge of the solar minimum, at which point a crash or panic should occur as apathy and conservatism overwhelms risk appetite.

Markets Update

Posted on Posted in Bonds, Commodities, Currencies, Macro, Stocks5 Comments

Yesterday’s upward thrust in stocks, on good breadth and volume, supports my favoured scenario of a push on into 21-23 March.

There is a potential divergence in % stocks above 50MA that could spell a period of sideways range action after that.

Source: IndexIndicators

A significant divergence is now present on my medium term model for the S&P500, whilst noting that the Dax is on model, having been playing catch up from underperformance.

A couple more sessions of contined upside for stocks and we will start to hit overbought and overbullish measures again. I still have a couple of stock indices longs and will be looking to exit them at the end of this week or the beginning of next if that occurs.

A key development yesterday was an upwards break in treasury yields – the rounded bottom is gaining momentum. There is a large wall of money in treasuries that could start to flow towards risk assets.

Source: Stockcharts

My expectation, based on my previous analysis, is that commodities should be the main recipient, and that commodities should outperform stocks leading into next year’s solar peak. Yet, what we are currently seeing is the opposite.

Here are commodities versus the medium term model – very much on model. Yet I was anticipating stocks aligning with the model whilst commodities pull away. So what’s up?

The US dollar is strong again. Good economic data from the US is helping support the USD, as well as no further indication yesterday of more, or further extended, dollar-diluting programmes. As I previously noted, the US dollar is in a delicate long term position, which I expect to break downwards, helping propel commodities to their secular conclusion. However, right now we lack a trigger for that, and with fairly neutral sentiment towards the Dollar and the Euro, that doesn’t give us a reason either.

Of course a strengthening USD does not make a commodities rally impossible. Another key factor is China. Recent Chinese data has been softer than expected, and whilst expectations are for Chinese easing/stimulus, as yet the Chinese authorities are being cautious. Here are the latest OECD leading indicators, and whilst we now see a definite up turn in most countries, China isn’t following suit yet.

Source: OECD

Here’s gold. The smaller wedge is the first potential reversal opportunity. Failing that, the confluence of long term rising support, falling s/r and the 23 fib look like the next most likely bounce point.

Marc Faber is still a longer term gold bull, but anticipates gold could fall to $1500 here. Such a move would put it below all the key moving averages that have supported the secular gold bull to date and so I think it’s unlikely, but, much like the USD, it is delicately poised, and I am closely following both.

Solar Cycles, Agri and Equities

Posted on Posted in Commodities, Solar Cycles, Stocks2 Comments

Here is a chart showing the relation of between live cattle prices and solar cycles. It can be seen that cattle futures peaked very close to the last 3 secular commodities solar peaks of 1917, 1947 and 1979. This suggests cattle prices should peak close to the next anticipated secular commodities solar peak of Feb/Mar 2013.

Source: Sergey Tarassov

If we bring cattle futures prices up to date in the chart below, we can see that prices have been accelerating upwards since 2010, which appears in line with historic behaviour as sunspots pick up.

Source: TradingCharts

Both the EU and the US are forecast to produce lower meat output in 2012 and 2013, as farmers rebuild herds amongst tight supply and strong demand (from countries such as Russia and Turkey). It is not expected that supply in cattle will catch up until 2014.

Therefore, by solar cycles, cattle prices should rise into next year’s solar peak, and the demand-supply situation supports this happening. Prices have been rising quite consistently and strongly already however, and may not give traders an easy entry point.

Turning to corn, we see a similar strong relationship between prices and solar maximums for the last 3 secular commodities solar peaks of 1917, 1947 and 1979. Again, this suggests corn prices should rise into next year’s anticipated secular commodities solar peak.

Source: Sergey Tarassov

Corn futures prices took a dip after their early 2011 peak and perhaps offer a better entry point currently, particularly as current droughts from Mexico to Argentina are expected to shrink corn stockpiles to a five-year low. However, whilst shrinking inventories are expected to push up prices over the next 6 months, record planted acres are expected to make for bumper harvests later in the year. The wildcard in this is the weather.

Source: TradingCharts

Now according to new NECSI research, investor speculation rather than regular demand-supply factors was instrumental in the two food price spikes of 2008 and 2011, and furthermore, they predict a third speculation-driven spike by 2013.

 Source: NECSI

This fits very well with what I have previously written regarding the influence of rising sunspots into the solar maximum inspiring human behaviours of buying, risk-taking, and money circulation. The drive to speculate makes for risk excesses in either stocks or commodities into solar peaks, and into 2013 we see evidence that speculation will peak in commodities, with the history in cattle and corn prices above adding to that.

Turning to equities, there is a historically similar route map in the 2000s so far to that of the 1850s, i.e. a historical rhyme. If we amalgamate that with other such close historical rhymes, such as 1887, 1923 and 1906, the ‘average’ route map looks like this:

Source: Sergey Tarassov

That fits very well with my own findings in how the stock market performed into previous solar commodity peaks, namely overall flat, and also that the low is likely to be around 2014, but a higher low than in 2009. It also fits with a recession 2013-2014 and stocks starting a new secular bull in 2014, as a lead indicator before the recession ends.

The next two charts are spectrograms for the Dow Jones Industrials index stretching back in time, the first being older and the second more recent. These capture all the actual cycles, based on real major turns, and layer them over each other. Where we see spikes, these represent the biggest confluences of the same time cycles.

Source both:  Sergey Tarassov

Forget theoretical cycles, here we are seeing what actual cycles are observed repeatedly in this index, and there is a notable confluence of a cycle of 3.5 years in both charts. Now the current cyclical stocks bull began in early 2009, and 3.5 years later would be late 2012, which if turned out to be the cyclical top, would again fit very well with topping out ahead of the solar peak and recession, and diverging from commodities at the end, which go on to a parabolic top at or following the solar peak.

Another notable confluence on the above two charts shows that there is a cycle at work lasting 9-12 years, which happens to be the length of a solar cycle. Based on my work, we would expect to see the solar cycle visible in such an analysis, and that is a very close fit.

Which brings me to this link, which is CXO Avisory’s piece finding no notable correlation between the sunspot cycle and stock market returns. They demonstrate different approaches to finding a consistent relationship between the two, and find none. Well, if I took a similar approach to this chart of mine below it would average out at a negligible correlation too.

But that’s because the cyclical bull from 2003 to 2007 is not related to sunspots. If I look specifically at returns from solar minimums to solar maximums then I get something more persuasive, with an average 70% return in that 3-5 year period.

And to demonstrate the difference, here are the returns for the other period, down from the solar maximum to the next solar minimum:

That’s an average 25% return in that 5-8 year falling sunspot period, compared to a 70% in the 3-5 year period of rising sunspots. Not only is that a substantial difference, but the 5-8 year period is significantly longer than the 3-5 year period, and in fact the difference in average returns per year is 18% in the rising sunspots period versus 4% in the falling sunspots period.

So whilst I do not deny CXO’s results, I suggest the issue is in what they are looking for. The relationships between sunspots and the financial markets lie in solar peaks, and not only that but alternating with commodities in pro-risk speculative peaks that correlate with solar peaks. Furthermore, the spectrogram further up the page displays evidence of a cycle in stocks around the same length as the solar cycle, supporting this peak/turn relationship, but CXO’s analysis is looking for a close relationship at all times rather than up into and around solar peak turns.

In short, if we consider that rising sunspots inspire human risk-taking, buying and speculation, but that other factors would also drive people to similar behaviour, then in periods of negligible sunspots we might get strong cyclical bull markets for other non-sunspot related reasons.

What’s Ahead

Posted on Posted in Bonds, Commodities, Currencies, Stocks5 Comments

FOMC tomorrow. First major Bradley turn on the 16th March. Major Gann turn around the Equinox 21-23 March, which equates to the next top on my models. US Earnings Season begins again 10th April. Seasonal geomagnetism to peak in March-April and sunspots to ramp up again in the weeks ahead.

Take a look at the damage from the solar storms of the last few days:

That is an impressive spike. Now take a look how the models have tipped over on my Short Term and Medium Term models page. The message is clear – a market correction, or at least some volatility, is due. So I reiterate what I suggested at the end of last week: I expect either the markets to tip over and correct imminently, or for them to continue higher into 21-23 March, make a significant divergence from the models in doing so, and then correct.

Economic Surprises for both the US and the major economies continue to fall away from their peaks, and here’s a reminder of how stocks performed in 2009-2011 after Surprises twice peaked (blue line):

Essentially, upside was limited, the market was on borrowed time before it corrected. That said, the ‘borrowed’ time could last a couple of months, so I would want to see evidence of the market topping out from other sources, before shorting. So how do things look?

Insider selling continues to be at an extreme. Short Yen positions are also at the extreme. The former suggests stocks should pull back, and the latter that money should pour into the safe haven Yen. But these two aside, we don’t see extremes. The consolidation in pro-risk has reset some of the indicators that had were toppy, suggesting more upside may be required to reach an overbought and overbullish reversal.

If we look at the technical picture for the S&P500, we see it is flirting with its 2011 high, with potentially clear air above if it can break out, but also that it is within a rising wedge which would normally break to the downside. For my first scenario above of imminent correction, the index could potentially double top today with its high of the start of March, reversing at that horizontal resistance. For my second scenario of a push upwards into 21-23 March, the index could break out but within the wedge and overthrow to 1400 before a correction.

Meanwhile, the US dollar has been rallying, which has taken the wind out of commodities to some extent. If the Fed is dovish tomorrow, extends Twist or similar, we could see a reversal, and precious metals gaining ground again. However, if they do nothing, the USD could maintain popularity. It remains in a very delicate long term position, and whilst I continue to believe that it will ultimately break to the downside in a mirror of the 1970s, we need a trigger for that to occur.

Source: Stockcharts

I look at both precious metals and at mining stocks and see evidence for a big move up coming up, but not quite yet. Fed action tomorrow could provide a trigger, but failing that, a little more time looks needed. Treasury bonds continue to make a rounded top, yields a rounded bottom. If this is the prelude to a notable change in trend, then the Fed may have a reason to step in.

OK, let me sum up with my favoured scenario: stocks push on higher into 21-23 March, making a big divergence from the models and reaching overbullish/overbought again. I think that would then make for a nice shorting opportunity, and a subsequent period of mean reversion. I suspect that because most indicators have eased off from being toppy we need to push up to hit extremes again. Those extremes, plus some big divergences, would make for a higher probability trade than right now.

Roundup

Posted on Posted in Commodities, Macro, Solar Cycles, Stocks25 Comments

Yesterday we had a geomagnetic storm that although forecast was stronger than predicted. Today is the full moon. Later today we have the Greek swap decision result. Tomorrow is the key US jobs report. I will be letting all that play out and see on Monday whether there might be trade opportunities.

The storm:

With reports of enough creditor consent to pass the Greek debt swap, the markets may get satisfaction, but as one or two on here have suggested, the Euro debt issue may rise again. I keep my eyes on CDSs and yields and although still contained currently, the Spain CDS chart looks like it has unfinished business eventually ahead – still in a solid long term uptrend:

Source: Bloomberg

Supportive of such developments would be Spain’s peak debt rollovers this year:

Source: Bloomberg / Acting Man

Turning to the stock market, a look at the US small caps that rolled over first shows them already at rising support, whilst there remains a lower twin support of fib and horizontal s/r.

Laslo Birinyi has been in the media making analogies based on bull market internals and action that followed overall sideways years like 2011, and quotes  1982 and 1990, both very bullish years that just kept on rising.

Source: CNBC / Ticker Sense

Meanwhile, Market Anthropology make an analogy with 1994 which implies first a pullback then revisit of the highs in April for a double topping process.

Source: Market Anthropology

And turning to gold, we see it has bounced at the 38 fib and has the potential to make an inverted head and shoulder pattern.

And Goldrunner indentifies similar chart patterns from 2005 and 2006 that would be supportive of a bullish upward break from here.

Source: Goldrunnerfractalanalysis

The problem with analogies and fractals is that even the most compelling can sometimes turn out to be red herrings. Recall that stocks in the first 9 months of 2011 made a series of waves that looked very similar to the 2007 top. It was only once a higher low was printed in November that the fractal was decisively negated. That said, historic repetitions and time cycles are fundamental in my approach and I can point to many that work out. The Mammis sentiment cycle was a recent example of an analogy that played out very accurately.