This is the DXY to the end of June 2019. We will conduct our cycle analysis exercise using data until that date i.e. the last ~2 years of data act as our testing/verification set.
Below I show the chart with the full data. Timing Solution shows the Learning Border Cursor (LBC) by shading the training and test data in light-blue and magenta respectively.
Crude remains classified in a “Sell the Rip” regime since the 7th of July and several dominant cycles into the summer of 2019 in WTI Crude Oil point to a possible beat in Sep/Oct 2021. This could line up with a period of weakness in stocks as outlined in the previous report.
In January of 1923, economist Joseph Kitchin’s Cycles and Trends in Economic Factors was published in The Review of Economics and Statistics (you can find a copy of the paper here https://www.jstor.org/stable/1927031?seq=1#metadata_info_tab_contents). In the paper, Kitchin used different economic data from roughly three decades around the turn of the century to identify a ~40-month cycle which would go on to be called The Kitchin Cycle (or Kitchin Inventory Cycle).
· In his own words:
“The movements of economic factors, whether made up of price or volume, are, it is suggested, mainly composed of:
Will the “tough” times for Gold bugs continue? Monday 8 March 2021
The model output has Gold in a “Sell the Rip” regime.
The Efficiency Test below shows a somewhat mild overhang of bearish pressure into late-April as a result. After that however, a strong one and half month period has been the result 90% of the time in the past.
A similar conclusion was drawn from the model regarding US Treasury bonds so late-April/early-May could be a good time to own bonds and precious metals.
Following up from last week’s report on bonds, below is a look at the actual regime estimate by the model. Notice the downward pressure during the “Sell the Rip” state. We remain in that state and last week we mentioned a potential 2-month overhang of downward pressure on bonds into early-May.
We got a bounce after the 25th February trigger and so I sold the 10-yr short. While I was sitting on a good small gain heading into Jay Powell’s statement, I chickened-out and closed my position given the potential for serious loss-making gymnastics in FED-induced price-action.
With the new…
The regime model flipped to “Mind the Squeeze” on Thursday. This is very interesting given that we entered the year in the “Buy the Dip” regime before the “Amber Alert” gave early warning for the late-January wobble.
As the market recovered to further highs, the “Amber Alert” remained in force thus giving warning for the potential of further wobbles such as the latest one that began in mid-February.
During this latest decline, the model has now flipped first into “Buy the Dip” and now into “Mind the Squeeze” which warns of the risk of sharp squeezes to the upside.
There is something about the recent USD strength that is worth investigating. Both USDCHF and USDJPY have recently been found themselves in the “Buy the Dip” regime according to my model.
The below two charts are two statistically significant swings that have been identified by the Eff. Test for USDCHF. The conclusion is that, historically, the period between 1 and 2 months post the signal, USDCHF has experienced an average 1.8% rally. Thereafter, a 2 month period with an average 3.8% decline has ensued.
Oil is popping up in the “Mind the Flop” region of the regime model. Is this something to worry about? We know that with strengthening prices, producers will at some point be enticed to increase production and new players will find entering the market profitable once again. So inevitably, supply will eventually satiate demand, and a new cycle of weakening energy prices will take over.
The below Eff. …
Is The Bond Market Toast? Sunday 28 February 2021
· Signals galore in the bond universe. IEF and MBB flagged as “Sell the Bounce” while SHY and LQD are coming out in the “Mind the Squeeze” quadrant. What the heck is going on?
· Let us begin with IEF.
· Below is an efficiency test in Timing Solution © for this signal on IEF over the last ~15 years.
· The window of observation is 60 trading days before and after the culmination (vertical dotted green line) of the signal.
· The thick blue line shows the average movement of…
The Autumnal Equinox brought the sixth regime shift since the beginning of this blog. The model now estimates that we are in the “Sell the Rip” regime and does so with an upper-quartile “conviction”. This is signal strength is similar to the early stages of the Feb/Mar melt-down and July melt-up.
Statistician, Cycle Analyst, Chartered Market Technician