"... we can expect a bottom of the current decline in unemployment around 2012. Then we should see a rising unemployment rate in 2013 and beyond, reaching a peak about 3 years after whenever the current sunspot cycle sees its peak."
Showing posts with label Tom McClellan. Show all posts
Showing posts with label Tom McClellan. Show all posts
Tuesday, July 10, 2012
Sunspots predict Unemployment Peak in 2015-16 | Tom McClellan
Wednesday, April 4, 2012
Eurodollar COT Indications for Stock Market Tops | Tom McClellan
www.mcoscillator.com - February 03, 2012
... For
almost a year, we have known that a top was due to arrive in February
2012. And sure enough, stock prices have been rising nicely in recent
weeks as fulfillment of that expectation.
Now this leading
indication says that things are going to get less fun for investors for a
while. The next 3 months show a sideways to downward structure in the
eurodollar COT data, and the implication is that the steep price advance
that we have been seeing should transition to a more sideways market ...
Eurodollar futures COT chart (from last year) sees the S&P 500 correcting until June, but then rallying hard. The next
major inflection point is due in early June, when this leading
indication says that a big multi-month rally is due to begin.
_____________________________________________
There are some informational jewels in the CFTC’s weekly Commitment of Traders (COT) Report, and sometimes in ways that most people would not imagine. This week’s chart looks at data on commercial traders’ net positions in eurodollar futures, but with a twist: that data is shifted forward by one year to reveal that it actually leads the movements of the stock market.
... The term “eurodollars” should not be confused with the exchange rate between the dollar and the euro. It refers to dollar denominated time deposits in European banks, and the term predates the creation of the euro currency. Eurodollar deposits typically follow the LIBOR interest rates.
... I am taking data from the eurodollar market, and applying it to an analysis of the US stock market. The key discovery that I made a few years ago is that the movements of the SP500 tend to echo what the commercial eurodollar traders were doing previously. I played around with alignments to get the best fit, and found that a one-year lead time gave the best correlation.
Let’s pause a minute to let that deep point sink in. Commercial eurodollar traders seem to “know” a year in advance what the stock market is going to do. It is not a perfect correlation, but it is a darned good one. I’m not sure what makes this work, but I have seen that it has worked great since about 1997. It may help to understand that the commercial traders of eurodollar futures are typically the big banks, who are using these futures contracts to manage their assets and fund flows. So what we are seeing in their futures trading are responses to immediate banking liquidity conditions, and those actions give us a glimpse of future liquidity conditions for the stock market. These liquidity conditions are revealed first in the banking system, and then the liquidity waves travel through the stock market a year later. But even if we cannot identify exactly what makes something work, after a few years of seeing that it does work we can learn to accept it.
_____________________________________________
There are some informational jewels in the CFTC’s weekly Commitment of Traders (COT) Report, and sometimes in ways that most people would not imagine. This week’s chart looks at data on commercial traders’ net positions in eurodollar futures, but with a twist: that data is shifted forward by one year to reveal that it actually leads the movements of the stock market.
... The term “eurodollars” should not be confused with the exchange rate between the dollar and the euro. It refers to dollar denominated time deposits in European banks, and the term predates the creation of the euro currency. Eurodollar deposits typically follow the LIBOR interest rates.
... I am taking data from the eurodollar market, and applying it to an analysis of the US stock market. The key discovery that I made a few years ago is that the movements of the SP500 tend to echo what the commercial eurodollar traders were doing previously. I played around with alignments to get the best fit, and found that a one-year lead time gave the best correlation.
Let’s pause a minute to let that deep point sink in. Commercial eurodollar traders seem to “know” a year in advance what the stock market is going to do. It is not a perfect correlation, but it is a darned good one. I’m not sure what makes this work, but I have seen that it has worked great since about 1997. It may help to understand that the commercial traders of eurodollar futures are typically the big banks, who are using these futures contracts to manage their assets and fund flows. So what we are seeing in their futures trading are responses to immediate banking liquidity conditions, and those actions give us a glimpse of future liquidity conditions for the stock market. These liquidity conditions are revealed first in the banking system, and then the liquidity waves travel through the stock market a year later. But even if we cannot identify exactly what makes something work, after a few years of seeing that it does work we can learn to accept it.
Friday, March 30, 2012
9-Month Cycle | Tom McClellan
 |
| July 22, 2011 |
The 9-month cycle in the stock market
used to be a very regular and important factor governing stock price
movements. But recent changes in the rules and structures of the
markets may have made this cycle go the way of Saturday trading and
paper stock certificates. Or perhaps it has just changed itself into a
new form. Let's take a look.
My lead chart this week highlights what I am talking about. Before 2007, there were important bottoms about every 185 trading days. Cycles analysts for years have called this the "9-month cycle", or the "40-week cycle", even though the precise period was a little bit shorter than those numbers. Big round numbers are easier to say, which is why those names were used.
In addition to the major cycle lows every 185 trading days, there was also a significant mid-cycle low that would appear somewhere in between the major bottoms. The mid-cycle low was usually not as punctual, and could arrive early or late, even as the major cycle low would tend to be more on time. This mid-cycle low was a "harmonic" of the frequency of the major cycle low, meaning that they were even multiples of each other. Harmonic frequencies are a big deal for mechanical engineers dealing with solid structures, but they also show up in other arenas like the stock market.
Starting in 2007, this all changed, as delineated by the red vertical line. It was hard to understand this change as it was occurring at the time, but easier to see now that we have the luxury of looking back at the historical data. What appears to have happened beginning in 2007 was that the length of this cycle contracted dramatically, for both the major cycle and the mid-cycle periods.
One of the reasons why it was so difficult to understand this change in period as it was occurring in real time is because of another trait of this cycle, which is known as a "phase shift". In my historical research, I have identified the 9-month cycle as working on the stock market all the way back into the 1960s, although curiously not so much before then. One of the more interesting behaviors of this cycle over that time period is that about every 6-8 years, the 9-month cycle would seem to skip a beat, and then start up again on some new schedule. Here is a great example of this behavior:
In the lower portion of this chart, there is a modified sine wave pattern to help visualize the behavior of the cycle in the SP500's price movements. The market was following this cycle pattern very nicely up until late 2005, and then it jumped onto a new schedule that just happened to be about a half cycle length off of the original schedule.
So with the knowledge that a phase shift was a possibility with this cycle, it was hard to understand what was happening in early 2008. And this illustrates one of the big pitfalls with doing any sort of cycle analysis: cycles can change, and so while they may give us nice predictions of what should happen at some point in the future, there is no guarantee that the past behavior will remain in effect in the future.
It just so happens that 2007 was when this cycle changed, and it was also the year that the uptick rule for shorting stocks went away. It is hard to understand why a rule change like this could make a difference on a market cycle, but I have an explanation that may help.
Imagine a wave pool in a laboratory, where scientists create waves to study how they travel through the water. Now imagine that you remove all of the water, and replace it with 30-weight motor oil. Because the oil is lighter but more viscous than the water, the behavior of waves in that wave pool would understandably be different.
So thinking of the financial markets, if the regulators were to do something that changes the "viscosity of money", making it flow more or less easily, then we would likely see changes in the way that waves propagate through that medium as well. Such changes might include restrictions on shorting stocks, the advent of money market funds, the introduction of stock index futures and options, leveraged ETFs, etc. All of these affect the ease with which money can flow into and through the stock market.
Now, if you look back at the top chart, you can see that the blue numbers are getting bigger again lately. Those numbers represent the time period between the major lows of this cycle (formerly known as 9-month). The lowest number was 159 trading days in early 2008, and it has climbed back all the way up to 177 as of the latest major cycle price low. It may be that after the initial shock, this cycle is working on getting back up to is "natural" frequency. Or it may be that 159 and 177 are just the widest extremes of a new range of cycle periods that average more like 168 trading days, and that this is the new natural frequency. We won't know for sure for several more cycles' worth of time, and that's the big problem with this analytical technique.
For what it's worth, and to help your planning, 159 to 177 trading days from the most recent major cycle low equates to a timeframe of Oct. 31 to Nov. 25, 2011.
My lead chart this week highlights what I am talking about. Before 2007, there were important bottoms about every 185 trading days. Cycles analysts for years have called this the "9-month cycle", or the "40-week cycle", even though the precise period was a little bit shorter than those numbers. Big round numbers are easier to say, which is why those names were used.
In addition to the major cycle lows every 185 trading days, there was also a significant mid-cycle low that would appear somewhere in between the major bottoms. The mid-cycle low was usually not as punctual, and could arrive early or late, even as the major cycle low would tend to be more on time. This mid-cycle low was a "harmonic" of the frequency of the major cycle low, meaning that they were even multiples of each other. Harmonic frequencies are a big deal for mechanical engineers dealing with solid structures, but they also show up in other arenas like the stock market.
Starting in 2007, this all changed, as delineated by the red vertical line. It was hard to understand this change as it was occurring at the time, but easier to see now that we have the luxury of looking back at the historical data. What appears to have happened beginning in 2007 was that the length of this cycle contracted dramatically, for both the major cycle and the mid-cycle periods.
One of the reasons why it was so difficult to understand this change in period as it was occurring in real time is because of another trait of this cycle, which is known as a "phase shift". In my historical research, I have identified the 9-month cycle as working on the stock market all the way back into the 1960s, although curiously not so much before then. One of the more interesting behaviors of this cycle over that time period is that about every 6-8 years, the 9-month cycle would seem to skip a beat, and then start up again on some new schedule. Here is a great example of this behavior:
In the lower portion of this chart, there is a modified sine wave pattern to help visualize the behavior of the cycle in the SP500's price movements. The market was following this cycle pattern very nicely up until late 2005, and then it jumped onto a new schedule that just happened to be about a half cycle length off of the original schedule.
So with the knowledge that a phase shift was a possibility with this cycle, it was hard to understand what was happening in early 2008. And this illustrates one of the big pitfalls with doing any sort of cycle analysis: cycles can change, and so while they may give us nice predictions of what should happen at some point in the future, there is no guarantee that the past behavior will remain in effect in the future.
It just so happens that 2007 was when this cycle changed, and it was also the year that the uptick rule for shorting stocks went away. It is hard to understand why a rule change like this could make a difference on a market cycle, but I have an explanation that may help.
Imagine a wave pool in a laboratory, where scientists create waves to study how they travel through the water. Now imagine that you remove all of the water, and replace it with 30-weight motor oil. Because the oil is lighter but more viscous than the water, the behavior of waves in that wave pool would understandably be different.
So thinking of the financial markets, if the regulators were to do something that changes the "viscosity of money", making it flow more or less easily, then we would likely see changes in the way that waves propagate through that medium as well. Such changes might include restrictions on shorting stocks, the advent of money market funds, the introduction of stock index futures and options, leveraged ETFs, etc. All of these affect the ease with which money can flow into and through the stock market.
Now, if you look back at the top chart, you can see that the blue numbers are getting bigger again lately. Those numbers represent the time period between the major lows of this cycle (formerly known as 9-month). The lowest number was 159 trading days in early 2008, and it has climbed back all the way up to 177 as of the latest major cycle price low. It may be that after the initial shock, this cycle is working on getting back up to is "natural" frequency. Or it may be that 159 and 177 are just the widest extremes of a new range of cycle periods that average more like 168 trading days, and that this is the new natural frequency. We won't know for sure for several more cycles' worth of time, and that's the big problem with this analytical technique.
For what it's worth, and to help your planning, 159 to 177 trading days from the most recent major cycle low equates to a timeframe of Oct. 31 to Nov. 25, 2011.
 |
| Advanced GET's Cycle-tool suggests this was the 9 Month Cycle crest. However, the tool is not adjusted according to Tom McClellan's findings. |
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