2015.12.31 DJIA Cycle Model Chart

2015.12.31 DJIA Cycle Model Chart

The DJIA cycle model continues to suggest lower prices through 2016. A previous iteration of the model is shown below and on the blog.

My best wishes to all readers for 2016.

2015.06.12 DJIA Cycle Model Chart

2015.12.18 Silver Cycle Model Chart

2015.12.18 Silver Cycle Model Chart

The silver cycle model suggests a bottom of ~1325 in silver price in March, 2016. Recently, the model is capturing the local minima and maxima of the price curve with a lag time of a few months. This should inform our interpretation of the model going forwards. A previous iteration of the model is shown below and previously  here on the blog.

2015.10.09 Silver Cycle Model Chart

2015.12.14 XOI.X Cycle Model Chart

2015.12.14 XOI.X Cycle Model Chart

The Amex oil index cycle model suggests that the recent decrease in the index price is temporary, and there is very strong upward pressure on prices. It is possible that the index has still to hit the low, but that possibility is low if the model is valid. Last time in mid-August where this much divergence occurred between actual and predicted price, the price reverted back to the predictive curve 'attractor.' A previous iteration of the model is shown on the blog and below.

2015.11.20 XOI.X Cycle Model Chart

2015.12.11 DJIA Cycle Model Chart

2015.12.11 DJIA Cycle Model Chart

The DJIA cycle model continues to suggest downward pressure on the index, predicting a DJIA index of 15500 by the end of 2015.  Previous iterations of the model are shown below and on the blog.

2015.10.08 DJIA Cycle Model Chart

2015.06.12 DJIA Cycle Model Chart

2015.12.04 Gold Cycle Model Chart

2015.12.04 Gold Cycle Model Chart

The gold cycle model suggests robust pressure for higher prices in the index going forwards. In fact, it suggests we may be at the cusp of a secular rise in gold prices, if the model is correct. The model has plenty of error, and the phase extension over the past few months has been disappointing because we are approaching the point where further divergences will likely not be tolerated by the model structure, and the result will be non-convergence on a model run. The model has reached these high levels of divergence on only four other occasions since 1968.  A friend of mine who has a full time job in the commodity markets tells me that the gold COT figures are quite astounding in terms of the number of speculator short positions at the present time. Historically these extreme positions by speculators always resolve to the upside.  Remembering that all models are wrong but some are useful, a short position in gold at this time would seem to be, on a historical cycle basis, a very very risky trade.  All previous iterations of the model can be found on the blog.

2015.11.20 XOI.X Cycle Model Chart

2015.11.20 XOI.X Cycle Model Chart

The XOI.X model continues to indicate higher prices for the index going forwards. It is very possible that the index has made a low in the October time frame.  Previous iterations of the model may be found below and here on the blog.  I apologize to readers if I have not answered your e-mails over the past few weeks; I am currently inundated with work (which is good!) and can barely keep up the blog. This should change when November wraps up.

2015.02.06 XOI.X Cycle Model Chart

2015.10.01 XOI.X Cycle Model Chart

2015.10.30 XOI.X Cycle Model Chart

2015.10.30 XOI.X Cycle Model Chart

2015.10.30 XOI.X Cycle Model Chart

The XOI.X cycle model strongly suggests the index will be rising, having made a low at the beginning of October, 2015. Below are shown a couple of iterations of the model, the first from a month ago, and the second one from February, 2015.  They also appear on the blog here and here, respectively.

2015.10.01 XOI.X Cycle Model Chart

2015.02.06 XOI.X Cycle Model Chart

2015.10.09 Silver Cycle Model Chart

2015.10.09 Silver Cycle Model Chart

As predicted from the last iteration of the silver cycle model shown here and below, we did get a small spike in silver prices though somewhat later than the model prediction, which is within error. What is happening is a continued phase shift so that the local maximum may have already been reached, and it appears lower than in previous model runs.

2015.09.11 Silver Cycle Model Chart

2015.10.08 DJIA Cycle Model Chart

2015.10.08 DJIA Cycle Model Chart

The DJIA cycle model continues to converge rapidly, and is now at the point where we might expect the downward trend to resume.  Note there was a previous overshoot on the downside which corrected. Also, a good example of how factors not captured by the model, namely, the Fed getting cold feet on the promised interest rate rise, effect model performance. Look at the curves and guess when the Fed retracted the possibility of an imminent rise in rates.  Below is the first iteration of this model, which also appears on the blog here.

2015.06.12 DJIA Cycle Model Chart

2015.10.02 Gold Cycle Model Chart

2015.10.02 Gold Cycle Model Chart

The gold cycle model continues to suggest a rise in price, however, several of the longer term decadal cycles continue to extend within their error parameters. However, the Z-score is also extending into 5 sigma territory, so if a reversal does not occur in the next few weeks, the usefulness of the model can be seriously questioned.  The model provides an example of what happens when cycles extend within their error parameters.  The model run from 2015.05.15 is shown below and here on the blog.

2015.05.12 Gold Cycle Model Chart

2015.10.01 XOI.X Cycle Model Chart

2015.10.01 XOI.X Cycle Model Chart

The XOI.X cycle model suggests we are approaching a low for the index. The model suggests the target date of October 9, 2015 as the cycle low. Please remember these are models, and not reality, and that the "true" target low may have already occurred, or could still be a few months away.  Or, "All models are wrong but some are useful." A previous iteration of the model is shown below and here on the blog. This model has been well-behaved in the past, however, that is not a guarantee for the future since sometimes cycles extend, even to the point of blowing up!

XOI.X Cycle Model Chart

2015.09.18 DJIA Cycle Model Chart

2015.09.18 DJIA Cycle Model Chart

The DJIA cycle model continues to suggest downward pressure on the index going into the end of 2015. A previous iteration of the model is shown below and on the blog.

2015.06.12 DJIA Cycle Model Chart

2015.09.11 Silver Cycle Model Chart

2015.09.11 Silver Cycle Model Chart

The silver cycle model suggests strong upward pressure on prices going into October, given the Z-score > 2. As seen below, the model has undergone a phase shift, and the previous prediction of an October high of ~ 2100 has been pushed to ~1700. The same model output can be seen on the blog here.

2015.08.03 Silver Cycle Model Chart

2015.09.04 DJIA Cycle Model Chart

2015.09.04 DJIA Cycle Model Chart

I usually don't perform weekly updates on the models, but I thought readers might be curious about the DJIA model. I am! Strong decadal, yearly, seasonal and monthly cycles are all headed lower at this juncture and the DJIA seems, for now, to be following the script. The model predicted a close of 16746.10 and the DJIA closed at 16102.38. The Z-score at the close, which is hard to see above, is 0.579.  Please note that I have updated the time axis. The first published iteration of the model is shown below and here on the blog.

2015.06.12 DJIA Cycle Model Chart

2015.09.04 Gold Cycle Model Chart

2015.09.04 Gold Cycle Model Chart

The gold cycle model shows that over the past month, a long-term cycle extension has pushed the predictive model curve forward, but not enough to break the model, at least as of now. Please note I have changed the scale of the price.  The high Z-score from the previous iteration, as shown below, was associated with a rise in price level, though not enough to go return back into 'neutral zone' around the +/- 1 Z-score.  The previous iteration is shown below and here on the blog.

On a macro level, I was pondering how gold might rise in an environment where the received wisdom of the markets is that there will be a rate increase which will push up the dollar, thereby putting downward pressure on prices. However, one data point I noted was that during the recent equity market declines, capital did not appear to flow into 'safe' treasuries at the historically expected rate, which was explained by Asia selling USTs to support their currency, as they experience capital flows out of the respective countries.  For hedgers trying to front-run the Fed, this was a disaster.  Even if the Fed does raise rates, I wonder if that might have the opposite of the intended effect, since that would put even more pressure on countries holding a high level of US debt, and the response may be to sell the debt to support the currencies. I'm not an economist so take the musings with a grain of salt or two!

2015.07.17 Gold Cycle Model Chart

2015.08.28 DJIA Cycle Model Chart

2015.08.28 DJIA Cycle Model Chart

The DJIA cycle model continues to suggest downward pressure on the index price. The model predicted a top in the DJIA  as shown below and on the blog.

2015.06.12 DJIA Cycle Model Chart

2015.08.21 XOI.X Cycle Model Chart

2015.08.21 XOI.X Cycle Model Chart

The index price dropped well below the prediction, suggesting a similar situation as occurred in December, 2014 which was followed by a very rapid reversal. Below and on the blog is show the predictive cycle model run from late 2014.

2014.12.26 XOI.X Cycle Model Chart

2015.08.14 DJIA Cycle Model Chart

2015.08.14 DJIA Cycle Model Chart

Given the DJIA cycle model prediction from 2015.07.17 shown below and on the blog, the model is performing well. Given my previous experience with cyclically structured equity models, while I'd like to state we have seen the top in the DJIA for a couple of years at least, it's prudent to reiterate that this only means that there are strong secular, decadal, and yearly/seasonal cycles converging and all pointing to lower index prices. If the Fed restarts QE, all bets are off.

2015.07.17 DJIA Cycle Model Chart

2015.08.07 DJIA Cycle Model Chart

2015.08.07 DJIA Cycle Model Chart

The new DJIA cycle model seems to be performing well. I would caution readers that the previous DJIA models tested well on out-of-sample tests, but then managed to crash and burn. A reasonable interpretation is that from a historical  business cycle perspective, dating to 1896. there is strong downward pressure on the DJIA.  The first iteration of the model is shown below and here on the blog.

2015.06.12 DJIA Cycle Model Chart

2015.08.03 Silver Cycle Model Chart

2015.08.03 Silver Cycle Model Chart

The silver cycle model is suggesting higher prices peaking in the October, 2015 time frame. The model is performing relatively well, and given we are at an inflection point, it will be informative to see if the model holds over the next two months. The previous iteration of the model, which suggested a drop in price,  is shown below and here on the blog.

2015.06.04 Silver Cycle Model Chart

2015.07.24 XOI.X Cycle Model Chart

2015.07.24  XOI.X Cycle Model Chart

The XOI.X index cycle model is performing well. The model is suggesting an upwards correction before the continued drop in index prices towards the low in the October/November 2015 time frame. A previous iteration of the model is shown below and here on the blog.

2015.07.17 DJIA Cycle Model Chart

2017.07.17 DJIA Cycle Model Chart

For new readers, please note that the previous DJIA cycle model failed, so all the usual caveats apply.  The previous iteration suggested slight upward pressure on the index, which has now resolved. Going forward, the model suggests increasing downward pressure on the index going into Fall, 2015. For this model on a historical basis, the absolute value of the Z-score >3 has been a good predictor of a reversal. A previous iteration of the model is shown below and here on the blog.

2017.06.12 DJIA Cycle Model Chart

2015.07.15 Gold Cycle Model Chart

2015.07.17 Gold Cycle Model Chart

The gold cycle model stubbornly suggests higher gold prices into the Fall, 2015. At the end of 2008, there was a similar period of time where the z-score was just over 4 and a reversal occurred. You can see this in the long term chart area. The previous iteration is shown below and here on the blog. 

2015.06.05 Gold Cycle Model Chart

2015.06.28 Silver Cycle Model Chart

2015.06.28 Silver Cycle Model Chart

The silver cycle model is performing relatively well, and suggests increasing upward pressure on silver prices beginning in the August 2015 time frame. As noted previously on the blog and below, the silver price did drop in accordance with the model prediction.

2015.06.04 Silver Cycle Model Chart