I have not included all thecharts and you will want to go to the sites to review them if you get into allthis.
I find the lagging nature of geomagnetism intriguing and the sun spot excitability relationship is alsoimportant. In fact it seems to bespecific on a day by day basis. It iscreditable that we are individually affected by the magnetic flux and decisionswill be accelerated or retarded by this.
The correlations are fairlydecent but hardly definitive either. They should certainly taken into account and recognized, and all marketpickers know that on a given day their decisions differ significantly fromanother day quite inexplicitly.
So folks, after you check thedaily 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
By: John_Hampson
If you have not already read the first part of my analysis on SolarActivity and the Financial Markets, please do so here, as it provides importantbackground for part II.
In that article I provided evidence that rising solar activity into asolar peak is correlated with periods of inflation and that in historicalsecular commodities bull markets the relative pricing of hard assets to stockshas each time peaked at the solar peak. Commodities are sought after ininflationary times and their prices are a key ingredient in consumer priceinflation levels, producing a feedback loop, but given that stocks also usuallyperform well in inflationary times is there any correlation between stocks andsolar 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. Clickhere for a larger image.
It is immediately apparent that solar peaks show some correlation withpeaks in stocks. In fact, buying at each solar minimum and selling at the nextmaximum (3-5 years later) has returned average gains of 70%.
An even better strategy would have been buying and holding stocks overmultiple solar cycles, being out of the market specifically for just ahalf-cycle around 1930 and 1970. This strategy returned 10-fold gains each timemeasured from solar minimum to solar maximum over a multi-decade period.Pattern continuation would imply that the half-solar-cycle from March 2000 toDecember 2008 set up a potential 10-fold increase from the December 2008 solarminimum to a Dow level of around 85,000 by the 2030s (and that the March 2009low was the definitive low). If that target seems excessive, then bear in mindthat this is the nominal Dow, not real inflation-adjusted, and that such anincrease would only be in line with history. That timescale would also fit wellwith an average secular stocks bull between the 2010s and 2030s, powered bytechnological paradigm shifts from AI, nanotech, biotech, geoengineering,alternative energy, or other fields. Consider that technological evolution isexponential in pace and the last secular stocks bull delivered internet, mobilephones, DNA indentification, fibre optics and more.
Here is the data supporting the shorter term strategy of buying at solarminimums and selling at the next cycle maximum for an average 70% gain:
Why might stocks consistently outperform in these periods from solarminimum to maximum, and underperform from solar peak down to the next solarminimum, particularly as higher solar activity can cause higher geomagnetism onEarth which affects humans biologically negatively and adversely affects stockmarket returns (see first article)?
Well, there is a slight lag in geomagnetic peaks after solar cyclepeaks, as shown below, and this fits well with why we have seen an economicrecession follow each solar cycle maximum in the last century - it correspondsto the peak in geomagnetism. Historically, this post-solar-peak period hasbeen one of human apathy and peace. Conversely, the period into the solarpeak 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 itis predicted to peak in July 2013. An average gain of 70% for the Dow over thisperiod would translate as 14500 by mid 2013 (which would mean a new nominal alltime high).
A recession has closely followed solar peaks for each solar cycle in thelast 100 years. The average recession duration is 1 year. The average length ofrecession-induced stocks bear markets is 1 year 4 months. As the stock marketis forward looking, and a leading indicator, we could therefore find the stockmarket peaks around the beginning of 2013 and then declines into the solar peakin mid 2013, and then declines through a recession into 2014.
Dow-Commodities ratios and consumer price inflation should peak atextremes 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 stockslag in the last few months. This final divergence occurred in previous secularinversions in history. If the Dow were at 14500 at this relative peak point, thenhistorical Dow-commodity ratio extreme inversion points can be our guide as towhere gold and oil should then be.
The Dow-gold ratio has thus far made a low of 6.86 in this secularbull/bear, so a greater extreme than this needs to be reached. However, basedon the 200 year Dow-Gold ratio chart anything beneath this level may qualify asa turning point, but note that levels of 1-2 were hit in the last 2 secularinstances.
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.
Source: Sharelynx.com
The Dow-oil ratio, based on historic extreme turning points, couldbottom 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.
Source: Approximity
Understand that Dow 14500 is calculated on AVERAGE historic gains onlyso should not be given too much emphasis. However, my recent pieces of analysison the cyclical stocks bull suggest such a 17% gain from current levels to bemore pessimistic than optimistic, as a market top. Previously I have reasonedfor minimum targets of $2000 gold and $150 oil. The above calclulationstherefore suggest we should not be suprised to reach some way higher.
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In summary, there is a correlation between stock market performance andsolar cycles. A profitable strategy over the last century would have been tobuy at the solar minimum and sell at the next solar maximum, and repeat for anaverage 70% gain in each instance.
An even more profitable strategy would have been to buy and hold over2-3 decades in between 3 specific half solar cycles. This strategy would haveproduced 10-fold gains each time, and pattern continuation suggests such arepetition 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 shouldtrack yet higher, and this implies commodities much higher, as an extremerelative pricing of commodities over stocks should be reached around that solarpeak, before a secular inversion.
John Hampson
Solar Sun Spot Activity and the Financial Markets
Stock-Markets / Financial Markets 2011
Mar 30, 2011 - 10:13 AM
By: John_Hampson
In recent weeks we have seen surprisingly high solar activity, withsunspot readings over 100 on multiple days, shown below, red line.
Underlying Source: Jan Alvestad
To understand how high these readings are, the chart below forecastsaverage sunspots to peak under 100 at the height of the current solar cycle(which is named solar cycle 24).
Source: NOAA
So what are the implications of this sharp rise in sunspots? Well, Ihave 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, asshown below. Sunspots are the red line, earthquakes the black line.
As we are climbing up towards the peak of solar cycle 24, we maytherefore see more incidences of earthquakes (also, note the longer term risingtrend in quakes). In terms of impacts on the markets, much depends on howsevere quakes are and whether they occur near centres of commerce or in remoteareas. It is common though to experience multiple quakes in the same area oncean initial event has increased the tectonic stress, so it may be prudent tohold back on seeing Japan
Secondly, esclation and spread of turmoil in the Middle East and North Africa also conicided with a peak in solaractivity. Human mass excitability has been shown to correlate with peaks insolar activity, with A.L. Tchijevsky finding that 80% of the most siginificanthistorical human events occured within the years around the solar maximums,specifically "mass demonstration, riots, revolution, wars and resolutionof most pressing demands". Again, as we approach the current cycle 24 peakwe may therefore see more such activity, and in trading it may pay to be alittle more cautious or to be a little more invested in a safe haven such asgold.
But rising sunspot implications don't stop there. Let's dive in a bitdeeper.
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Cyclical planetary movement around the sun brings about cyclical swingsin 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 causesgeomagnetic activity on Earth. There is a correlation between geomagnetism anddepression and suicide in humans, and an increase in psychotic episodes inindividuals who already suffer from unstable psychological states. Solaractivity is also shown to make people more excitable, irritable and aggressive,and can affect melatonin synthesis, blood pressure, heart disease and lightsensitivity.
Translated to the stock market, we see poorer average returns on daysof significant geomagnetism. Increasing solar activity may therefore representa headwind for the stocks bull.
Source: Robotti / Krivelyova
Translated to economics, we see a correlation of peaks in inflationwith solar activity peaks and a correlation in recessions following solar cyclemaximums, as shown in the next 2 charts.
Source both: Amanita.at
Combining these two charts with the solar cycle 24 forecast chart, wearrive at a prediction of inflation increasing into a peak around 2013 followedby a recession. Note that the 2013 peak is only a forecast and as solar cyclesvary in length around an average it it possible that the recent escalation insunspots in recent weeks could make for a steeper trend to peak a littleearlier, we shall see. Either way, it might be prudent to be now invested inassets 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 betweenhard assets and paper (or stocks) then we find that the last 3 peaks incommodities relative to stocks occured at solar cycle peaks, around 1918, 1948and 1980. I have labelled these 1, 2 and 3 in the two charts below.
Source: Carl Moore
Source: Nowandthefuture
Every third solar cycle peak corresponded to a secular peak in tangibleassets (such as gold and oil) in relation to paper assets, and the peak ofsolar cycle 24 will be the third since 1980, putting us on track for anotherrelative 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 be3 further solar cycle peaks away at around 2046. Using secular averages, wecould therefore estimate a secular commodities bull to occur from around 2030to the mid 2040s, and working back, a secular stocks bull from around 2014 to2030.
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In summary, the recent escalation in solar activity and the predictedtrend to a solar cycle peak currently around 2013 suggests increasedearthquakes, increased human excitability in the form of action and conflict,increasing inflation and rising relative returns in hard assets until arelative peak at the solar maximum, giving way to a new economic recession.
Specifically, the solar peak around 2013 should coincide with extremesfor the Dow-gold and Dow-oil ratios and consumer price inflation, before arecession emerges in which commodities fall harder than stocks and in so doingthe two asset classes begin their relative secular inversion.
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