2013.05.06 Silver Cycle Charts

Here are the updated charts for silver. The model continues to perform well, and suggests continued downward pressure on silver prices. A brief note to the gold and silver people that continue to post or e-mail me weird notions on how commodity markets run.  I'm not sure why gold and silver are the only two markets that attract this behavior; I have some theories but they are better left unsaid.  You may have noticed the blog is moderated, so you waste your time writing the post, and my time putting it in the spam bin. That is probably enough said for now.

If you have gotten this far, I'll make a note that market volatility is predicted to increase beginning this week in both short term and long-term models. You can download the long term model for VXX here.

2013.05.03 Gold Cycle Charts

At the request of a friend, here is the latest and greatest set of gold cycle charts. I am happy with the performance of this model, and it is predicting a double bottom for gold. There are slight price/turn date changes from the previous iteration. The $1375 price bottom should be taken with a grain of salt, though the standard error suggests $1375 +/- $250.   I have more confidence in the turn dates. When is Spring coming to the Northern Hemisphere is what I'd like to know! Have a great weekend.

2013.04.19 XOI.X Oil Index

The oil index cycle model is performing well. I suspect that there are weather-related cycles involved in the continuing rise.

2013.04.19 DJIA Cycle Charts

I think there is increasing evidence of a  global economic slowdown and the DJIA cycle model is reflecting this in terms of historical cycles. The Fed has indeed managed to extend the credit cycle by at least two years, but its asset buying QE seems to be having less of an effect on the currently modeled cycle.

2013.04.19 Silver Cycle Charts

The silver cycle model is performing well, though it appears to be at some variance with the gold cycle model. As a monetarily dimorphic metal with both monetary and industrial uses, again, at the risk of over interpreting these data, it would seem that for silver, the continued downward pressure on prices may reflect the global economic slowdown.

2013.04.19 Gold Cycle Charts

I was going to wait until the end of the quarter, but events in the PM markets suggested an update on the various cycle models. I hope to put the other cycle model charts on the blog in the next day. If the model continues to perform well, it appears to have signaled a bottom in gold a couple of months earlier than predicted by the model, which is normal error. As usual, I would give more credence to the timing of the turning point rather than the actual price.  At the risk of making too much of these data, it seems as if the end of the contracting credit cycle may herald an increase in the money supply appearing at the end of this year, followed by an increase in the gold price.

2013.03.22 Cycle Charts

Comparing this to the last cycle chart for the DJIA, there are several high-amplitude historical cycles that continue to attract prices lower.  As I mentioned previously, the take home message is that the Fed, by buying financial assets from banks at the rate of $85 billion per month, may have been successful in extending the cycle amplitudes, but is pushing against history.

Like everyone else, I am trying to make sense of what appears to be a major misstep by the ECB/IMF with respect to the Cyprus dilemma. Since confidence is the spittle holding the banking system together given the drought of liquidity, anything that inspires people to move their assets out of banks is exactly the wrong way to restore trust in the banking system. The ECB may have made bank runs a major topic of discussion not just in Cyprus, but in any EU country with a lame banking system. Perhaps as Martin Armstrong likes to say: It's just time.

2012.12.31 Cycle Charts

Here are the cycle charts for the end of the year 2012.  I will post quarterly updates since more frequent updates are not required given the models' turning point errors which are somewhere in the 6-12 month  given that higher frequency cycles with a period < 233 days have been eliminated.  I cannot explain why the Amex Oil Index model is predicted to rise well into 2014 while the DJIA, gold and silver all look like they are responding to deflationary pressures all through the year.

The American economy continues to consume more than it produces as outlined by the ever-increasing current account deficit. This reflects deep underlying structural issues that will not be palliated by the so-called "fiscal cliff compromise."  I continue to believe that while the Fed has stretched the 81 +/- year cycle that defines the baseline through the current topping process as reflected in the equity markets, it has not abolished that cycle. If I am to believe the cycle models, then 2013 should be the year where the markets realize their predicament and act accordingly.

I'll take this opportunity to wish everyone a happy, healthy and successful year!

2012.12.14 Monthly Amex Oil Index Cycle Chart

Here is the Amex Oil Index model. This model is the only one that remains unchanged from July, 2012.  It did not have any interest rate or unemployment data inputs and there may be a lesson in this. KISS.

The VIX

Pretty much 100% of my trading time is now spent on VIX futures.  There are philosophical reasons for this approach at this time which are too long to detail here. The summary is that the VIX seems to be relatively immune to the noise generated by HFT and stop-loss discovery algos. I abandoned structural modeling for this project and used a neural network, formally an "SVM" or support vector machine for data crunching.  I have been long since 2012.11.21 at the close  and it looks like today the output suggests continuing a long position.  For the next month, I will post daily updates here on what the VIX model indicates. This is of course purely for amusement purposes.

I have found the stop price to be reasonably well estimated by taking a moving standard deviation of the time series over 8 days, and subtracting three times its value from the previous closing price.  Wash sales are highly annoying!

2012.11.21 15.31 BUY at the close
2012.12.13 16.56         stop @ 15.39

2012.12.14 Monthly Gold Cycle Chart

Here is the new gold cycle model chart. As with the silver model, all cycles < 233 days were excluded from the analysis, as well as any cycle information obtained from outside the data series.

2012.12.14 Monthly Silver Cycle Chart

This is the new cycle model for silver. It has been pruned so that all data inputs are directly related to the time series and nothing else. All cycles with periods less than 233 days were also eliminated from the analysis because short-term fluctuations were much less helpful in decreasing error than has been the case in the past.  I'll see if I can update it at least monthly. 

2012.12.14 Monthly DJIA Cycle Charts

I have been slowly rebuilding the cycle models, which are now less complex as a result of the input data pruning. As promised, here is the new cycle model for the DJIA.  One of the cycle model inputs, a cyclical model of its own relating the yield curve spread and rate of change of US monetary aggregates is worse than useless and was contributing to the increasing error. I have also dropped all inputs regarding employment data from the US BLS. The increasing second-degree fluctuation of their short-term variance convinced me that the set of data I was using contained more noise than information. The academic question is now not whether  Fed interventions can change business cycle amplitude and phase, but by how much and over what time window. Right now, it looks like the long-term cycles with a period > 8 years are stable since 1896, and it is the noise in the shorter cycles that created the error in the previous model version beginning around early 2010.   So according to the model, we might have topped out on the DJIA.

2012.07.20 Weekly Cycle Charts

The predictive curves of the short-term cycle models for the DJIA, Gold, Silver and the Amex Oil Index are all showing strong downward trends for this week going to the end of July. The Amex Oil Index is set to make a multidecadal low by the end of July, followed by a strong uptrend for the rest of the year.

I am pressed for time and will provide the longer term models only at the beginning of each month. My apologies are extended  if this causes readers any inconvenience.

2012.06.15 Weekly DJIA $ Gold $ Silver $ Oil

The cycle models suggest downward pressure on prices for the DJIA, Gold and Oil, while the Silver cycle model hints at higher prices for silver over the next 4 weeks peaking at about the $30/oz range. Have a great weekend!


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2012.05.04 Weekly DJIA $ Gold $ Silver $ Oil

The long term cycle model for the DJIA continues to underestimate the price of the time series, but the short term cycle model seems to be working reasonably well.  For my comments on the long term model for the DJIA please refer to previous posts. The increase in VIX suggests that maybe, just maybe we might be heading for a major correction in the equity markets.

The other three models are performing well. The short term silver cycle model suggests a small rise in silver prices next week, followed by a resumption of the decline.

Enjoy the very large Full Moon this evening, along with the eta Aquarid meteor shower, and have a great weekend!




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2012.05.01 Long Term DJIA $ Gold $ Silver $ Oil

These cyclic structural models are not designed to be used as trading models. These models perform with less error on the time scale compared to the price scale, and are best interpreted by putting more credence in the turning points rather than actual prices. With that in mind, here is the long term DJIA model, which has been performing poorly as a short term indicator of market movements. When backtested at decadal time scales, the DJIA model still has some validity, so I am showing the chart which must, by necessity,  include the shorter time scale parameters. There is always the possibility of a "6-sigma event" in terms of short-term model divergence, which will become apparent with time if true. The event itself may reflect the concerted effort of Western Central Banks to push forward the "Minsky Moment" by recursively capitalizing banks that have lost assets. Or, it could just be a lousy model.

Both gold and silver models are performing well in the short term, so it is interesting to look at the long term picture. I extended the time range to 2024 to capture the parallel behavior of the gold and DJIA models. To engage in a bit of fantasy - it makes a nice story that somewhere around 2016, instead of being issued as debt, large quantities of money are added to the world economy by concerted monetization of government  held bonds. I could see the rise in gold and DJIA as a reflection of a Von Mises "crack-up boom." Thorsten Polleit has a nice essay on the subject.

I don't have any reasonable ideas regarding the divergence of gold and silver, however, these are just models so reality may intervene!

Previous long term predictions:   2012.03.30 Monthly Long Term Predictions: DJIA $ Gold $ Silver


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