| Stock Index | Commodity Index | Crude Oil | Dollar | Interest Rates | |
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| Economy | Climate |
| Stock Index |
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| Stock Index: Investors may be frazzled, but the drop in August was likely into a long-term three-year business cycle bottom. A similar bottom placed in 2013 was a running correction suggesting an extremely strong market. The 2011 low related to QE events by the Fed. The 2009 low was a more important cycle that related to the 2008-09 recession. A model based forecast is for the stock market to rally into 2017 for the next three-year cycle top. Major support is the August low for the S&P 500 index around 1,867.01 and resistance of the 2015 high at 2,134.72. It will take a violation of resistance (a record high) to show the trend is truly up. I believe there is potential for 2,600.00s to 3,000.00s this decade. The three-year cycle relates to the Kitchin cycle followed by some investors and economists. It may have been discovered in business inventories, but I find the three-year shows up in non-financial and non-economic data as well. Keep in mind things look the worst at a bottom. A positive turn in some fundamentals may lag a rally in the stock market. |
| Commodity Index |
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| Commodity Index: A monthly close above 92.6283 for the Bloomberg Commodity Index should be a sign of a three-year business cycle low. More important evidence of such a long-term bottom would be a close above 105.9407. The stochastic indicator is of positive divergence, oversold and crossing for a buy signal. Commodities are likely undervalued when compared to the U.S. and global economies. |
| Crude Oil | Back to top |
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| Crude Oil: Ethanol futures continue to show relative strength to crude oil. Oil has likely placed a three-year business cycle low (as of August), but this is the second or third call for such a bottom. A majority of traders may not be on board that a major low was forged until prices rally above $62.58 for the continuation chart. Prices should rally from such a low into late 2016. Sometime this decade, I assume oil will return to $80.00s, but it may take time and prices will be of a ratchet process. | |
| Dollar | Back to top |
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Dollar: The U.S. currency relative to the dollar index should decline from a Level 2 cycle high due now. It should trend lower into a Level 1 cycle bottom due as late as November and perhaps as soon as late October. Downside potential is likely limited, but there is chance for the index to return to 93.00. Although the analysis suggests a three-year cycle high in March, this is not the case for the dollar against the Canadian dollar, Brazil reais and others. However, the cycle is due to peak for the dollar relative to those currencies. The stalling of the dollar should allow importers to adjust to an overall higher dollar than in recent years, which should support U.S. export potential. A rate hike by the Fed may cause another run higher for the dollar, but I think the dollar rallied far enough to have dialed in rate hikes and a growing economy for a while. And the longer the Fed waits on a rate hike the more the dollar is likely to erode. | |
| Interest Rates | Back to top |
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| Interest Rates: The Fed’s fund rate rallied from the 1940s into a super cycle peak in the early 1980s. The extreme rate related to high inflation and an effort by the Fed to kill the rise in inflation via high interest rates. Since that time, the fund rate declined to near zero as of the late 2000s. Super cycle analysis suggests rates are unlikely to rally much at all this decade, but should be in a bull market (higher) next decade and into the 2030s. Given creativity, productivity and activity with competition in business and labor, I doubt inflation and rates will return to the 1980s high during the next 20 years, but the trend should be up during that period. | |
| Economy | Back to top |
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| Economy: I was surprised to see how low the ISM-PMI of manufacturing declined this summer into fall. But analysis continues to suggest a three-year business cycle bottom is due for the index and the U.S. economy. I find similar evidence for other nations. A return to above 53.5 for the index would signal a return to faster-paced growth. Analysis suggests the economy will grow during 2016 into 2017 and the index will recover. The cumulative study of the index (Economy Trend Indicator) continues to march higher showing the economy is growing, but the pace is of growth is slower. The economy grows for 7 to 12 years and corrects (recession) for 1 to 3 years. Combining the two trends creates a cycle of 8 to 13 years that I label as a nine-year business cycle. This cycle likely relates to the famous Juglar cycle that reflects finance and the economy. The nine-year cycle is up from a recession low made in 2009. It may remain up until 2019. And so 2019 to 2021 is the latest for occurrence of the next decade-based recession. Although some investors, businesses and analysts fret the cycle has turned, I find insufficient data at this time. The forecast is for the trend to remain intact into at least 2017. | |
| Climate | Back to top |
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| Climate: During September the Chicago precip index spiked suggesting above normal rains. But the overall trend since 2014 may still be down and the cycles allow for dry conditions next summer. The Chicago temp index spiked during summer showing above normal temps. The bounce is the best turn up since late 2014. A three-year cycle of temps is due to turn higher and it may yet relate to a hot summer for 2016. A cyclical weather problem for crops is due some time from 2016 to 2018. We may see good crops in 2016, but we need to be on the lookout for stress. The drop in precip in 2012 (drought) was also related to a 27-year cycle. | |
