Market in Waiting Mood

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News Buzz

• Stocks at risk in the run-up to presidential elections.

• Dow drops as investors seek ‘clearer read’ from labor market in Friday jobs report.

• The two-month countdown to the Nov. 5 presidential election begins Thursday, a period that is often marked a rough patch for the U.S. stock market. According to Dow Jones Market Data, the S&P 500 has turned in a negative performance over that two-month stretch in every election year since 2008, with an average fall of 5.8%.

• Almost every recession since 1955 has been preceded by an inverted curve, except recently when it inverted in 2022. When the curve disinverts, or returns to its normal shape, as it did on Sept. 4, some say that could signal a downturn is soon approaching.

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Solar Cycles vs Financial Markets – Part 1

• Cycles in nature have been researched by scientists for a few hundred years.

• Solar and planetary cycles have been documented to have a pronounced influence on Earth (see LT Market Cycles and 10 Years Market Outlook BraVo Dec 2021.pdf in Educational Resources).

• The figure below is an excerpt from the 1971 book Cycles—The Mysterious Forces That Trigger Events by Edward Dewey and Og Mandino.

• A represents sunspot numbers, B the first difference (rate of change) of sunspot numbers, and C the index of U.S. total production excluding crops – all values are smoothed by a 4-year moving average.

• We can make two observations: 1) the peaks and troughs in the U.S. production (C) occur earlier than the peaks and troughs in sunspot numbers (A), and 2) the peaks and troughs in the US production (C) are rather coincidental with the rate of change in sunspot numbers (B).

• The latter correlation is remarkable. Possibly, some other force affects both A and C, but it has a faster response in C than in A. That force could be the Sun’s electromagnetic field that instantly affects the Earth's electromagnetic field. But this is beyond the scope of our main topic.

• What is essential to note is that U.S. production should naturally have a strong correlation with various financial markets.

• Prechter and Kendall documented a correlation between DJIA and monthly sunspot data until 2000, shown below.

• It can be observed that DJIA troughs occur somewhat earlier than the sunspot sequence troughs in the 20the century.

• Stock peaks appear to be coincidental, +/-, with the sunspot peaks.

• Although this relationship does not facilitate accurate timing, it is very insightful for longer-term forecasting of the stock market's peaks and troughs using the 11Y sunspot cycle, typically in the range of 10-12 years.

• Various scientific institutions provide fairly accurate sunspot cycle predictions.

• We will continue with more findings from the Prechter and Kendall article in Part 2.

• The figure below shows measured and predicted values of sunspot numbers for the last several cycles (upper) and the cycle 25 in progress.

• We can see that the sunspots are forecasted to peak before the end of 2024, which also implies that the stock market is in the general peak area.

• As an exercise, you can mark the stock market peaks and troughs in the last several sunspot cycles on the upper graph. Remember that there are other cycles at work also.

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Market Summary

As of close on 5 September, 2024

What Has Been

• Another consolidation day in the US. Perhaps traders and investors were waiting for today’s job report.

• The Asia was mixed, while Europe was red.

• Dow declined 219.22 points or -0.54% to 40,755.75. 

• S&P 500 declined 16.66 points or -0.3% to 5,503.41. 

• Nasdaq advanced 43.37 points or 0.25% to 17,127.66. 

• Russell 2000 declined 13.16 points or -0.61% to 2,132.06.

What’s Next

• My comments from Thursday generally stand.

• It remains to be seen whether the existing down targets will be satisfied immediately or after a few days of sideways to up.. . .

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