There are a couple of items I want you to glean from the weekly S&P 500 chart above (each candle is one week of activity), marked with my cycle analysis notes.
First, you can see the nominal, intermediate cycle low due in mid-March. That is the cycle correction underway now.
Second, note that a larger cycle (larger, dotted semi-circle) is slated to the bottom in mid-August. The larger, dotted cycle is the nominal 18-month cycle – the big kahuna – the eight on the Richter scale. If this market will fall apart, the nominal 18-month cycle is the humdinger in our windshield. The cycle could be peaking now, but that is not my best judgment. As always, though, I will keep an open mind. At the halfway point on the semi-circle, the cycle begins to assert some influence. When all the cycles you see above are in sync, I get out my parachute.
While these cycles are built into the algorithm, it never hurts to see them in black and white. While cycle analysis is secondary in my work because it is not precise and subject to less tolerable variation, it has been a helpful “guide” over the past 34 years.
On a separate note, Chairman Powell’s semi-annual testimony is out. Here are the headlines thus far:
Perhaps these temperate economic views will nip the current inflation fears in the bud – but I would not count on it. I will be watching interest rates (TNX) and the financials (XLF) carefully to see the reaction today.
So far, the market has bounced on the Powell news intraday, and consumer confidence for January just came out, holding steady with a marginal gain. At least it was higher than the consensus expected, and that should be helpful as well.
Following up on last night’s mention of the book “The Dying of Money.” Jens O. Parsson wrote the book in the mid-1970s and chronicles the inflation in 1920s Germany and the 1970s in America. I had not read this in 20-years. It well-deserved my review. I will put the PDF up on the website later today as history may be repeating itself.
What struck me in reading this text last night is how good the financial markets and economy were in Germany in the 18-months leading to the currency crash. Inflating the currency really works and works well until it doesn’t. The Modern Monetary Theory crowd forgets one major item. It works until confidence breaks. Confidence is a tricky thing – it is hard to build but dissipates almost instantly. There are certainly historical lessons for the situation at hand.
Let’s see if Chairman Powell saved the market – if only temporarily…
A.F. Thornton