Wednesday, April 13, 2011
Sunspots and the Financial Markets
I have not included all the charts and you will want to go to the sites to review them if you get into all this.
I find the lagging nature of geo magnetism intriguing and the sun spot excitability relationship is also important. In fact it seems to be specific on a day by day basis. It is creditable that we are individually affected by the magnetic flux and decisions will be accelerated or retarded by this.
The correlations are fairly decent but hardly definitive either. They should certainly taken into account and recognized, and all market pickers know that on a given day their decisions differ significantly from another day quite inexplicitly.
So folks, after you check the daily weather, check out the daily magnetic weather. It may be making you frisky or blue also.
Sun Spots Solar Activity and the Financial Markets Part II
Stock-Markets / Financial Markets 2011
Apr 04, 2011 - 05:09 AM
If you have not already read the first part of my analysis on Solar Activity and the Financial Markets, please do so here, as it provides important background for part II.
In that article I provided evidence that rising solar activity into a solar peak is correlated with periods of inflation and that in historical secular commodities bull markets the relative pricing of hard assets to stocks has each time peaked at the solar peak. Commodities are sought after in inflationary times and their prices are a key ingredient in consumer price inflation levels, producing a feedback loop, but given that stocks also usually perform well in inflationary times is there any correlation between stocks and solar cycles?
Below is a long term Dow Jones Industrial Average stock index chart, with solar peaks marked as black spots and solar minimums as red spots. Click here for a larger image.
It is immediately apparent that solar peaks show some correlation with peaks in stocks. In fact, buying at each solar minimum and selling at the next maximum (3-5 years later) has returned average gains of 70%.
An even better strategy would have been buying and holding stocks over multiple solar cycles, being out of the market specifically for just a half-cycle around 1930 and 1970. This strategy returned 10-fold gains each time measured from solar minimum to solar maximum over a multi-decade period. Pattern continuation would imply that the half-solar-cycle from March 2000 to December 2008 set up a potential 10-fold increase from the December 2008 solar minimum to a Dow level of around 85,000 by the 2030s (and that the March 2009 low was the definitive low). If that target seems excessive, then bear in mind that this is the nominal Dow, not real inflation-adjusted, and that such an increase would only be in line with history. That timescale would also fit well with an average secular stocks bull between the 2010s and 2030s, powered by technological paradigm shifts from AI, nanotech, biotech, geoengineering, alternative energy, or other fields. Consider that technological evolution is exponential in pace and the last secular stocks bull delivered internet, mobile phones, DNA indentification, fibre optics and more.
Here is the data supporting the shorter term strategy of buying at solar minimums and selling at the next cycle maximum for an average 70% gain:
Why might stocks consistently outperform in these periods from solar minimum to maximum, and underperform from solar peak down to the next solar minimum, particularly as higher solar activity can cause higher geomagnetism on Earth which affects humans biologically negatively and adversely affects stock market returns (see first article)?
Well, there is a slight lag in geomagnetic peaks after solar cycle peaks, as shown below, and this fits well with why we have seen an economic recession follow each solar cycle maximum in the last century - it corresponds to the peak in geomagnetism. Historically, this post-solar-peak period has been one of human apathy and peace. Conversely, the period into the solar peak has been one of human excitability, pro-action and economic inflation, which fits well with stock market gains.
Source: Susan Macmillan, British Geological Survey
Solar Cycle 24 began around December 2008 with a solar minimum and it is predicted to peak in July 2013. An average gain of 70% for the Dow over this period would translate as 14500 by mid 2013 (which would mean a new nominal all time high).
A recession has closely followed solar peaks for each solar cycle in the last 100 years. The average recession duration is 1 year. The average length of recession-induced stocks bear markets is 1 year 4 months. As the stock market is forward looking, and a leading indicator, we could therefore find the stock market peaks around the beginning of 2013 and then declines into the solar peak in mid 2013, and then declines through a recession into 2014.
Dow-Commodities ratios and consumer price inflation should peak at extremes at the solar peak (as has occurred each time in the last century), suggesting commodities should push on all the way into mid-2013 whilst stocks lag in the last few months. This final divergence occurred in previous secular inversions in history. If the Dow were at 14500 at this relative peak point, then historical Dow-commodity ratio extreme inversion points can be our guide as to where gold and oil should then be.
The Dow-gold ratio has thus far made a low of 6.86 in this secular bull/bear, so a greater extreme than this needs to be reached. However, based on the 200 year Dow-Gold ratio chart anything beneath this level may qualify as a turning point, but note that levels of 1-2 were hit in the last 2 secular instances.
If Dow-gold bottoms at 6 and Dow is 14500: gold is $2400.
If Dow-gold bottoms at 1 and Dow is 14500: gold is $14500.
The Dow-oil ratio, based on historic extreme turning points, could bottom at 75 or below.
If Dow-oil bottoms at 75 and Dow is 14500: oil is $200.
If Dow-oil bottoms at 50 and Dow is 14500: oil is $300.
Understand that Dow 14500 is calculated on AVERAGE historic gains only so should not be given too much emphasis. However, my recent pieces of analysis on the cyclical stocks bull suggest such a 17% gain from current levels to be more pessimistic than optimistic, as a market top. Previously I have reasoned for minimum targets of $2000 gold and $150 oil. The above calclulations therefore suggest we should not be suprised to reach some way higher.
In summary, there is a correlation between stock market performance and solar cycles. A profitable strategy over the last century would have been to buy at the solar minimum and sell at the next solar maximum, and repeat for an average 70% gain in each instance.
An even more profitable strategy would have been to buy and hold over 2-3 decades in between 3 specific half solar cycles. This strategy would have produced 10-fold gains each time, and pattern continuation suggests such a repetition from the solar minimum at the end of 2008 looking out to the 2030s, in line with a further secular stocks bull.
Looking shorter term to the solar peak around mid-2013, stocks should track yet higher, and this implies commodities much higher, as an extreme relative pricing of commodities over stocks should be reached around that solar peak, before a secular inversion.
Solar Sun Spot Activity and the Financial Markets
Stock-Markets / Financial Markets 2011
Mar 30, 2011 - 10:13 AM
In recent weeks we have seen surprisingly high solar activity, with sunspot readings over 100 on multiple days, shown below, red line.
Underlying Source: Jan Alvestad
To understand how high these readings are, the chart below forecasts average sunspots to peak under 100 at the height of the current solar cycle (which is named solar cycle 24).
So what are the implications of this sharp rise in sunspots? Well, I have annotated the first chart with two recent macro events.
Firstly, the Japanese Earthquake occured at a peak of solar activity. There is some historic correlation between solar activity and earthquakes, as shown below. Sunspots are the red line, earthquakes the black line.
As we are climbing up towards the peak of solar cycle 24, we may therefore see more incidences of earthquakes (also, note the longer term rising trend in quakes). In terms of impacts on the markets, much depends on how severe quakes are and whether they occur near centres of commerce or in remote areas. It is common though to experience multiple quakes in the same area once an initial event has increased the tectonic stress, so it may be prudent to hold back on seeing
as a current investment opportunity, in case further events follow. Otherwise,
a little extra general caution in trading may be appropriate, if we should
expect further earthquakes globally in the climb to the solar cycle peak but
cannot predict where or when they might occur. Japan
Secondly, esclation and spread of turmoil in the Middle East and
North Africa also conicided with a peak in solar
activity. Human mass excitability has been shown to correlate with peaks in
solar activity, with A.L. Tchijevsky finding that 80% of the most siginificant
historical human events occured within the years around the solar maximums,
specifically "mass demonstration, riots, revolution, wars and resolution
of most pressing demands". Again, as we approach the current cycle 24 peak
we may therefore see more such activity, and in trading it may pay to be a
little more cautious or to be a little more invested in a safe haven such as
But rising sunspot implications don't stop there. Let's dive in a bit deeper.
Cyclical planetary movement around the sun brings about cyclical swings in solar activity, with one solar cycle lasting an average of 11 years, sometimes as short as 9 years or as long as 13. Solar activity causes geomagnetic activity on Earth. There is a correlation between geomagnetism and depression and suicide in humans, and an increase in psychotic episodes in individuals who already suffer from unstable psychological states. Solar activity is also shown to make people more excitable, irritable and aggressive, and can affect melatonin synthesis, blood pressure, heart disease and light sensitivity.
Translated to the stock market, we see poorer average returns on days of significant geomagnetism. Increasing solar activity may therefore represent a headwind for the stocks bull.
Source: Robotti / Krivelyova
Translated to economics, we see a correlation of peaks in inflation with solar activity peaks and a correlation in recessions following solar cycle maximums, as shown in the next 2 charts.
Source both: Amanita.at
Combining these two charts with the solar cycle 24 forecast chart, we arrive at a prediction of inflation increasing into a peak around 2013 followed by a recession. Note that the 2013 peak is only a forecast and as solar cycles vary in length around an average it it possible that the recent escalation in sunspots in recent weeks could make for a steeper trend to peak a little earlier, we shall see. Either way, it might be prudent to be now invested in assets that do well in an inflationary environment as we trend up to the peak, such as precious metals and energy.
In fact, if we look back historically at the secular swings between hard assets and paper (or stocks) then we find that the last 3 peaks in commodities relative to stocks occured at solar cycle peaks, around 1918, 1948 and 1980. I have labelled these 1, 2 and 3 in the two charts below.
Source: Carl Moore
Every third solar cycle peak corresponded to a secular peak in tangible assets (such as gold and oil) in relation to paper assets, and the peak of solar cycle 24 will be the third since 1980, putting us on track for another relative peak in hard assets at the currently forecast cycle peak of 2013. Going further still, we can estimate the next commodities peak after that to be 3 further solar cycle peaks away at around 2046. Using secular averages, we could therefore estimate a secular commodities bull to occur from around 2030 to the mid 2040s, and working back, a secular stocks bull from around 2014 to 2030.
In summary, the recent escalation in solar activity and the predicted trend to a solar cycle peak currently around 2013 suggests increased earthquakes, increased human excitability in the form of action and conflict, increasing inflation and rising relative returns in hard assets until a relative peak at the solar maximum, giving way to a new economic recession.
Specifically, the solar peak around 2013 should coincide with extremes for the Dow-gold and Dow-oil ratios and consumer price inflation, before a recession emerges in which commodities fall harder than stocks and in so doing the two asset classes begin their relative secular inversion.