Saturday, May 5, 2012

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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Wednesday, May 2, 2012

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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