2013.06.21 Cycle Charts

Since some readers like to print out these charts, I have changed the color scheme to make that a bit easier.According to the DJIA model, we are at the cusp of a major downside event. However, in the past, this was preempted by QE(n+1). Meanwhile, gold, silver and oil are performing well, though I wonder if the gold:silver ratio will really rise to the level suggested by the gold/silver predictions. For readers both in the Northern and Southern hemisphere: Happy Solstice!  I hope you all got out to enjoy the Supermoon.

2013.06.03 DJIA Cycle Model and Z-score

In case the reader has not followed the progress of the DJIA cycle model, I want to emphasize that of the four cycle models I present here, DJIA, Gold, Silver, and Oil, this is the least predictive model. I believe the reason is that the model looks at a conglomeration of historical business cycles since 1896 as reflected in the Dow Jones Industrial Average. The US Federal Reserve has been buying assets and expanding its balance sheet to the point where the process is now in uncharted territory. This has introduced an "error" in the model parameter estimates because the current level of asset buys dwarfs the last time the US Federal Reserve engaged in asset buying during and shortly after WWII. This error has not been transmitted to the other three models. At least not for now.

The z-score measures how much the prediction deviates from the actual price on a historical basis. The current Z-score shows that the model is deviating 2 sigmas from the mean, which is the largest deviation since 1929. All things being equal, the prediction would be for strong downward pressure on the Dow until early to mid 2014.

2013.05.31 Silver Cycle Chart

It's a good cycle  model and it shows continued downward pressure on silver prices. if it continues, the effect would be to elevate the gold:silver ratio to extremes, but then again, given the extreme asset buys of the US FRB, ECB and BOJ, these are extreme times!

2013.05.31 XOI.X Oil Index

The Amex Oil Index model continues to perform well, as can be seen from its previous iterations. Note I have changed the axis limits for better resolution.

2013.05.31 Gold Cycle Chart

According to the gold cycle model, we are approaching a turning point at the end of this month.  If you refer to the longer term cycle charts, this may represent the first bottom of the "double-bottom" expected.  I am interested to see how the gold:silver ratio goes in the next few months, inasmuch as there is a lot of divergence between the two models at this point, at least for the short-term.