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Stock Index | Commodity Index | Crude Oil | Dollar | Interest Rates |
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Economy | Climate
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Stock Index
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| Stock Index: The Dow Jones Industrial Average stock index (DJIA) placed a 216-year business cycle low during the depression of the 1930s. Its related trend is up into the next peak due some time during the 2030s. The last peak occurred in 1835 and relative to another index. The trendline resistance for this super cycle trend and for the DJIA begins at 21,985.00 for 2016. Support is from the 216-year low and a 72-year cycle low placed in 2009. The 72-year cycle would have normally related to a depression and possible 90% collapse for the stock market, but financial engineering reduced the impact to approximately a 50% decline. I had forecast during the 2000s, that something would be done to cause a new statistic with less devastation. The cyclical analysis called the March 2009 low and identified an opportunity in some foreign markets such as Russia in November 2008. (That nation’s market fell nearly 85% suggesting the historical performance repeated for the cycle.) A nine-year business cycle trend is up from 2009 into 2017 to 2019. This suggests a record high is to occur in coming years, but the market is currently dealing with three-year and six-year business cycle lows that are due for economies. |
| Commodity Index |
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| Commodity Index: There is nothing new to say about commodities in terms of indices. The bear market since 2008 is intact. Research suggests this bear market has lasted an unusual number of years. I believe this adds to studies suggesting that commodities are undervalued relative to the economy. Investors need to recognize value in commodities compared to other investments. Keep an eye on the inflow of money into commodity ETF -funds. |
Crude Oil
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| Crude Oil: Spot oil futures have returned to the 2009 recession-related low at $32.40 per barrel. The market continues to stair step lower, but is oversold on a long-term basis. Some analysts believe gasoline demand will be stronger in 2016, which would add support despite supplies. Ethanol has been dragged lower by the overall weakness of the energy sector. Production of ethanol is running strong. The cyclical forecast continues to call for a rally in 2016 in relation to at least a three-year business cycle that is due to turn up. I believe speculation by bears is overdone despite supplies, but the market lacks a driver for a worthy reversal at this time. |
Dollar
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Dollar: The U.S. Dollar Index has rallied out of a minor intermediate intra-year cyclical low called Level 2. A related top is due early next month. If this cyclical trend violates 100.51, then odds favor a correction followed by still higher values into a Level 1 top due a few months later. Whereas, if the index were to respect the 2015 high, then a three-year business cycle top was likely placed and a correction should then occur for the first-half 2016. The Level 1 top due a few months from now would also be an opportunity for final placement of the three-year business cycle high that should then relate to a correction in the dollar mid-year and perhaps into year-end. The Level 1 low shown for February and near a blue support line may be at too low of a level unless the coming Level 2 top is below 100.51. Keep in mind that the euro is more than 50% of the index and so also watch individual currencies of our export competitors. |
Interest Rates
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| Interest Rates: Rates are range bound as investors realize the Fed’s hike of a quarter-point was more symbolic of economic sustainability than otherwise. The supply of money for safe-haven investment remains high or steady and so the demand by borrowers has not yet pushed free market rates higher. The cyclical trend is up from early 2015 and should remain so into 2017, but upside potential is rather limited. Long-term studies suggest a rise in rates the next few years, followed by a dip for a recession and then a more robust increase during the 2020s. |
Economy
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| Economy: The PMI (ISM version) slipped to 48.2 for December compared to 48.6 in November. A rating below 50 suggests a contracting economy relative to manufacturing. But Markit’s version of PMI still showed net growth although at slower pace. Other data such as consumer confidence/sentiment does not show the negativity expressed by businesses reporting data for the PMI. I am suspicious businessmen worry a bit too much and question how serious the slowdown. Three-year (3 to 4 years) and six-year cycle (5 to 7 years) lows are due for the economy including manufacturing. Although running late, the forecast remains for a pickup in the economy during 2016. The model script calls for growth into 2017. The December PMIs for several countries improved, but the global index was soft, albeit still reflecting growth. On a seasonal basis U.S. growth may not improve much until the second quarter, but some nations were surprisingly strong in December. A winter effect should be considered, but the long-term trend looks positive when considering news seems the worst near lows. |
Climate
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Climate: The chart exhibits November precip for the Corn Belt. Note that it was at the highest level since the early 1990s. This likely relates to the strongest El Nino in decades, which is said to be peaking. A forecast shown at the Weather Channel for January through March shows chance for above to well above normal temps in northern states and below average in southern regions. Precip is forecast to be below normal in some northern regions, above in the mid- to lower-plains and above in the mid- to southeast. Strong El Nino years have related to good crops, but some studies show such events were near time of major crop problems such as 1973-74 and 1983-84. In coming months we should expect analysts showing studies of 2015 and of this winter for insight into the 2016 growing season. I have learned since 1950, when cosmic rays bottom for a nine-year cycle, significant crop problems occurred within one to two years of the low. (This is an intriguing alternative study to sunspots.) Since the cycle recently bottomed, 2016 should be considered a weather-related crop risk year.
From the December update: A six-year cycle (actually spans five to seven years) is due to be of warmer temps and lower precip during 2016-18. It is difficult to pick which year could lead to a crop problem and all three years can be of complications. The same cycle can be found in corn yield and production and it is due for a low, which casts a bias toward a crop problem. This cycle should not relate to a crop problem like that seen in 2012, which related to a 27-year climate cycle. But with the super cycles of global climate change, the six-year cycle may cause greater damage than normal. The chart shown is that of Corn Belt temps and it shows the 27-year cycle high in temps during 2012. Note the tick up this year in temps, which may be a sign the cycle has turned. |
