Archive for October, 2008

SILVER turns up

Apart from the KEY REVERSAL bar (RIGHT), we have historical momentum lows both on daily and weekly time frame and conventional multi year supports on SILVER. Last week we mentioned the GOLD-SILVER ratio, which also suggests outperformance on SILVER. The ratio continues to suggest the turn up for SILVER.

This week we look at GOLD a bit closely. The move down seems incomplete. And now that prices have retested and breached the psychological 700, a further move down can not be ruled out. Sub 780, GOLD could be in for sub 600 levels. This might look strange, but this is what we see now. Above 780 we review. We have carried many other anticipated and happened cases on the rest of the metals complex. There is a special intermarket case on PLATINUM, which has historically outperformed both GOLD and SILVER. According to intermarket cycles, Platinum should lead Silver. The overall view on the broad metals complex continues to suggest that METALS are indeed completing the CYCLE II wave down. This is one CYCLE II low metal bulls may not like to miss.

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WAVES.GOLD is a perspective product published on Monday and Wednesday. The report highlights GOLD and other precious and base metals. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

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CYCLE II lows n the end of the world

I am visiting India and am writing from the Orpheus New Delhi desk. Markets have been making lower lows here too. And fortunately or unfortunately, the famous day of 28 Oct (1929, Black Monday) is a national holiday here. Not because India is celebrating the old crash, but it’s a start of an important day in the Old Hindu calendar also celebrated as the festival of lights, Diwali, symbolizing the victory of good over evil. The cyclicality of market crashes juxtaposed along with a day of a new beginning over an end, might seem odd. But this is the way market cycles work, an end is always a beginning.

A few of us from Romania or other emerging and developed parts of the world would wish a holiday too. But that’s the way we think, about pauses in tough times. But markets would not stop falling if you close them down (like we saw in Romania). And markets won’t keep falling just because everybody is selling and we start thinking this to be the end of the world. The stock market never has a “Depression” , it only corrects a previous advance. A cycle is action and reaction. And if you really think a 90% collapse is exceptional, think again, CYCLE II waves are known for their 90% collapses. In other words markets retrace most of the gains of the previous CYCLE I. After which the CYCLE III starts. (RIGHT)

How else do you think, performers will be polarized from underperformers. It’s the survival of the fittest. And what better way to test character, strength and skill than a real structural collapse, where market players are left to think ingeniously and differently. The players who survive today will the market leaders of tomorrow, as the CYCLE, once again will turn.

We continue to look at OCT lows making multiple month entry points, with possible bounce backs, 100% and more from where the feeling of the “End of the world” is the greatest. Don’t get fooled, the world is not ending, and neither is the BVB closing down. Have courage to accumulate the value stories here. We still believe in BRD, TEL, TGN, SNP and will be coming out with the top ten Orpheus stock picks in our latest XTR issue.

Meanwhile, look for new beginnings and not endings, now if you understand that they are the same.

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What happened to STEEL?

This is a normal question to ask if the top steel stocks collapse 70%. But is it really about Steel or is it linked with the CRB (Commodity Index), which retraced 50% of its gain since 1968? And now is back below 1980 highs. Or is it about Silver, an industrial metal which retraced 61.8% of it’s rise from 1991? Or is it about the Gold – Silver ratio which started rising from Dec 2006 suggesting that the prosperity was over?

Gold – Silver ratio also know as the prosperity index has indicated two previous recessions of 1990s and the 2000 slowdown in US (SLIDE 3). And the very fact that silver, a proxy for industrial metals started underperforming Gold was an indication that industrial metal should start underperforming too. As you can see Steel vs. Silver (RIGHT) is a tight pair (more correlated) than other pairs like Gold and Silver (RIGHT). The silver vs. steel intermarket ratio moves around parity more than the gold vs. silver ratio. A crack down in silver had to effect Steel and other base metals, which happened. This was also in sync with our call on CRB in July 2008, when we highlighted the impending collapse in CRB including OIL (INTERMARKET CYCLES 140708).

In April 2008 (THE METALS MAZE) we also said, “According to metals, this was no big collapse. We need another few months to see what works, the news and emotional chaos or the Gold - Silver ratio.” The Gold Silver ratio rushed up from 31 July 2008 and we all know what happened (SLIDE 3).

Now what? The answers to this question regarding Steel and base metals also comes from understanding Gold and Silver relationship and other metals. First, Gold can not keep outperforming Silver. There is an outperformance – underperformance Cycle between Gold and Silver, which is nearing an intermediate top and suggests either a fall on Gold or a push up on Silver (SLIDE 3). So in any case we should be nearing a bottom on Silver and so on for Steel, at least for an intermediate time frame. Second, After a 61.8% collapse most assets generally witnesses a respite. Third, Silver has reached a key primary level, and we see it leading metals to the next up cycle till 2015 (THE SENTIMENT THEORIST). So the first cues of a turn around should come in Silver, before bases metals and Gold turns up. Fourth, An Oct low in equities should also help the steel stocks. And a rising stock market helps steel prices more than Gold. Fifth, Silver prices have also reached all time historical oversold zones of a decade (SLIDE 13). The last two time it happened prices bounced. And we expect them to bounce again.

We have carried anticipated and happened cases on Gold and Silver. And the complete steel complex, which we see bottoming soon. Let’s see.

Enjoy the latest WAVE.GOLD.221008

WAVES.GOLD is a perspective product published on Monday and Wednesday. The report highlights GOLD and other precious and base metals. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

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Can SBI save the Sensex?

The only two indices to have fallen less than 30% among the Indian Indices are BSFMCG and BSEHC (Health Care). Readers of WAVES.INDIA would know that these are our top sectoral picks from THE LATE ECONOMIC sector cycle, we have been mentioning from the start of the year. However, it’s the third Index performer, which might surprise most of you. Amid all the global and local credit crisis, it’s the NSE BANK (Banking Sector) that has made it to the top three performers. YTD the Index has outperformed most of the Indices, with a fall at minus 36%. And if this still does not read well, the fact that NSE BANK is the only Index in the country to have given a positive performance for the quarter should be some screen alert.ORPHEUS RESEARCH AT REUTERS - UNITED KINGDOM

We dug into our analytic screens a bit more and found that the NSE BANK components screen is a lot polarized. One side we have a positive Bank of Baroda with a positive 2% YTD performance and on the second extreme we have ICICI bank, down minus 65%. It was the Sensex component and banking major at SBI (State Bank of India) with minus 17%, which seemed to still hold ground and validate NSE BANK’s last quarters positive performance.

SBI’s PRIMARY CHANNEL (RIGHT) has held on despite selling pressure. And now momentum (SLIDE2) also suggests that the JULY low might still have a chance to hold. This is why we feel SBI’s 1,350 – 1,400 levels can decide how low SENSEX is going to go. Till the time respective levels at SBI hold, keeping NSE BANK’s psychological 5,000 alive, we can have some MINOR bottom expectations here. However, please be clear that we are still looking for a price confirmation before reviewing our negative call continuation. We mentioned about UP BUT TOPPING (18 AUG 2008) first and then published THE OCT LOW perspective on 06 Oct 2008.

The idea of SBI saving the Sensex is indeed strange. But we are looking at it from the sentiment aspect. If Banks start non confirming the broad market declines, by failing to fall below JULY lows, we see this non confirmation as a building positivity and not otherwise.

In conclusion, till we have no price confirmation the trend across the market remains negative. And a break at NSEBANK 5,000 will only confirm the market negativity and push prices on Sensex and Nifty at least 12-15% more down from here.

 

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EXXON AND THE FOOL'S CROWN

We all get it wrong, sometime. But when you say ‘Exxon Mobil: A Great Big Buy’ on JUN 3 when the stock price is at dollar 88 near all time historical high at 93, you must be neck deep in Oil data and rig reports, unaware of everything else. Everything linked with OIL prices, linked with mass psychology extremes, linked with risk management etc. This is not just the Business Week star analyst GENE MARCIAL who said this, but we had many other star analysts there from Lehman, S&P Research (Strong BUY) and even Motley fool, which predicted stunning Q2 earnings for Exxon on July 30. Prices fell 41% from the top.

Well! we repeat, everybody gets it wrong, sometime. But a STRONG BUY crown is hard to throw once you have worn it at an all time top. Readers will remember you. And by the way, we at Orpheus got it right on EXXON, CHEVRON, XLE, BRENT and the OIL complex. We were cautious from dollar 125-135 OIL, but then we rather be cautious than wear the FOOL’s CROWN, which is really scary and tough to avoid sometimes. We are sorry guys, it’s a fool’s game, better luck next time. Try looking at stupid charts, fractals, sentiment, cycles, intermarket and exponential curve in statistics, it might help. THE OIL ROCKET written on MAY 2008 found us alone, thankfully. And we were negative on CHEVRON and EXXON from near dollar 80 levels on both WAVES.GLOBAL and WAVES.OIL. We have carried both the stocks every issue, carrying anticipated and happened cases. On 10 May 2008 we said, “OIL is headed to sub 100 and potentially lower till 70 and our research IMPULSE shows more of a PUT than a CALL”. Look at your mailbox you definitely would have a mail from your broker, giving you NYMEX BRT CALL OPTION premium rates, back then. There were many reasons we could see this coming apart from common rare sense and understanding that rockets are linked with euphoria and crash down. We mentioned above Oil vs. Gold Intermarket relationship, which was highlighting an impending underperformance on OIL compared to Gold (SLIDE 5). This happened.

Now let’s look at some alternative, non conventional research observations. First, the intermarket leadership of equity vs. it’s underlying commodity clearly suggested that XLE, CHV and XOM were not rising up with OIL. The classic extension of CHARLES DOW’s non confirmation rule in the DOW THEORY of 1884. Exxon was stagnant from July 2007 unlike OIL, which was excited. Second. Prices reached previous MINOR 4 waves resistances (SLIDE2) and the impulse was down and the corrective up. Third. Now prices have broken primary channel lows (SLIDE 11) on BRENT and the fall does not seem over yet. We could indeed push till dollar 60 and potentially lower till (4 circle primary at 50 – low probability scenario now). Fourth, We have 0.618 FIB levels met on few components of the OIL complex. This suggests some short term pause on XLE. But sub 45 we continue to look down till 34.

On the last note, NATGAS another key ENERGY component is back to where AMARANTH left it with 6 billion dollars of losses and a bankruptcy. Prices are back at a four year low. This is a place where there is no euphoria, not much news, no strong BUYS, a classic no noise accumulation signal. We will keep you posted when it turns to a BUY.

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FOOL'S GOLD - II

The last time we covered GOLD was when it was ranging between dollar 920-950 levels (FOOL’S GOLD). Well we have had a financial crisis and so much activity since then. But the crisis commodity is still sub 900. And as anticipated it did push lower back to sub 800 levels till 730. What happened? Why though the world talked about GOLD, the final hedge, the capitulations and the panic, there were historical volatilities, the destruction of real money, implosion of capitalism, the crisis commodity just did not move up? Why is it sleeping? This is another question which we may not understand.

Though we all have an opinion, it’s the time forecast which traps most of us. Gold is forever, but when to BUY is the only question that matters. 21 Apr 2008 was not a good time to be in Gold and it’s been six months since we said that, saving you the heartless wait and prayers of rises and hope that the crisis would push up gold. But Gold remains there, stay put, doing its own thing, keeping us on tenterhooks.

So what now? Now that crisis is here and Gold has not budged. What is the opinion on Gold? When is it maturing? Assets just like everything in nature have a prime and decay. Assets have a larger life than humans, as they are generational. This is why understanding the asset cycles need generational knowledge, also known as history. We at Orpheus call these generational knowledge as cycles. They work generation to generation, rarely eliminating themselves as along with generational wisdom there are generational mistakes, which we repeat as an aging or growing society. Gold symbolizes this generational knowledge and mistakes very well.

Gold is one of the oldest assets and has many short term and long term growth and decay time cycles affecting it. Understanding the gold cycle can tell us about the society as a whole and about the metal itself. The Gold cycle answers the question of WHEN very well. The current gold decay is of a shorter time. The asset is in an ongoing multiyear growth cycle, which we have highlighted prior could extend well into 2012-2015 time window. The Gold 30 year cycle (THE GOLD CYCLE) has been documented since 1869, with 75% of the Gold mined after 1910. The cycle sequence goes from 1869, 1907, 1934, 1973, 2000 and 2030. The 30 year up cycle started in 2000 and should continue for three decades. Even the most conservative estimates pitch gold near dollar 3,000 levels.

Before we see how low can GOLD go before it starts the big move up, let’s see what does Gold 3,000 mean, how valid the number is, and how this number defines the economic cycles ahead. First and foremost. Gold leads the commodity group. The CRB vs. GOLD relationship suggest that GOLD might continue to outperform the rest of the commodities. And the way we see things, the gold outperformance might continue till the cycle high in 2015. This seems more reasonable when you see the last time gold underperformed commodity complex was starting 1980. Second. Just like Oct is not just a calendar year, 1980 commodity top is very significant to understand generational cycles. 1980 was also a 60 year interest rate peak. And after the coinciding interest rate and commodity peak, 1980 also marked the half of the 1970 and 2000 Gold Cycle. This is why 1980 is much more significant than the 2008 top on Gold. 2008 is barely 1/3 of the 30 year cycle. Third: We all know what the Gold top of 1980 did. It ushered in a secular fall in gold and commodity prices and created a boom in equity markets. This is why connecting GOLD drop with equity crash is a lot different now. And means much more than deflation. Fourth: Market Cycles are crisscrossing across assets and we are in a period of excess hot leverage credit. A contagion can catch the markets by surprise, and that’s what happened, an energy gap. After which markets start searching for a balance. ‘Energy gaps’ are a much used jargon among cyclists. Fifth: The reason deflation may not happen is because not all Strauss and Howe lows coincide with a Kondratieff low. Strauss and Howe crisis alternate between deflation and accelerating inflation. This is why the previous Strauss and Howe metacycle deflationary low of 1946 should alternate with an inflationary cycle that should push until 2030 marked by a world war (every Strauss and Howe lows have witnessed a war). Sixth: In terms of actual price performance gold has been an outperformer against most cross assets till now. Seventh: The commodity fall was expected. The oil rocket we highlighted in MAY seemed ridiculous then, not now that Oil has collapsed by half. Alternative energy is not yet here and neither have we stopped consuming. To expect OIL journey up over also seems too easy an explanation. Above this, interest rates have not peaked yet, food is starting the next leg up and sentiment is at an extreme. This all suggests that even if the commodity revival may take a few months more, equity should start moving up in its last reprieve for the decade soon.

All these reason suggest that even if may get the jigsaw right, we might have muddled the timing again. And then there is the psychology aspect. The Dow psychology aspect we discuss last time, might still look a strange reading, but ask a trader who traded NIFTY futures after 12% historical up move on DOW (15 Oct). He lost money buying NIFTY Futures on the way up. And then ask the trader who sold NIFTY Futures the next day (16 Oct) with a 10% down day on DOW. He too will accept that his shorts hit stop loss. You cannot change mindsets, till the time you lose money. Maybe even losses might not teach us. But then still we have a higher chance to learn when we fail and lose. News and psychology are linked. If Ronald Reagan, President Hoover and Paulson talked about strong fundamentals and strong banks before the collapse of 1929, 1987 and 2008 than what use is information and news anyway. And who are we in the information chain?

When fear takes over, fundamentals are thrown out of the window. And messes start to unravel. Markets don’t know balance and are are all about extremes and extremity by very nature is unsustainable. This is why cycles work. We will not value nature and alternative energy till OIL goes to dollar 500. We will not balance the current credit expansion till Gold trashes paper money. The Gold inflation has just started. We won’t value nature till water becomes more expensive than OIL. Markets are the best teacher and equilibrium creator because we humans can’t balance between ethics and greed.

In conclusion the Gold corrective still points lower and we will not be surprised if it retests 700 levels. If it did not crack up with all the crisis behind it, the cycle could still be bottoming and may take a few more months. Meanwhile OIL below 70 brings it 50% down exactly from the point where we were crying for 200 dollars per barrel (THE OIL ROCKET). DOW cracked 10,000 as expected, but surprised us with the sharpness of the move down till low probability lows at 8,000. Well! we could not see that, but at least we were not long.

Enjoy the latest WAVES.GOLD.

WAVES.GOLD is a perspective product published on Monday and Wednesday. The report highlights GOLD and other precious and base metals. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers.

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FOOL'S GOLD - II

The last time we covered GOLD was when it was ranging between dollar 920-950 levels (FOOL’S GOLD). Well we have had a financial crisis and so much activity since then. But the crisis commodity is still sub 900. And as anticipated it did push lower back to sub 800 levels till 730. What happened? Why though the world talked about GOLD, the final hedge, the capitulations and the panic, there were historical volatilities, the destruction of real money, implosion of capitalism, the crisis commodity just did not move up? Why is it sleeping? This is another question which we may not understand.

Though we all have an opinion, it’s the time forecast which traps most of us. Gold is forever, but when to BUY is the only question that matters. 21 Apr 2008 was not a good time to be in Gold and it’s been six months since we said that, saving you the heartless wait and prayers of rises and hope that the crisis would push up gold. But Gold remains there, stay put, doing its own thing, keeping us on tenterhooks.

Read more…


Is Eurron FLAT, Normal or Expanded?

Start of the year we started with two counts, a preferred and alternate. The preferred view considered an intermediate top at 3.84 and Alternate considered another pending upmove before Eurron anticipated weakness comes to an end. All this early FEB 2008 view came after we got the move up from 3.08 (July 2007).

The preferred view was on dot, as prices did ease from 3.84 levels and fell as low as 3.45 levels. However, there were a few concerns. First the price structure down was a lot overlapping (SLIDE 3). This was a sign of countertrend and not a real reversal of trend. Second. The fall was not deep enough and barely retraced 50% of the move up from 3.08 till 3.84. Third. The RSI weekly momentum continued to hold at 40 levels (SLIDE 3). Fourth. Things became more clear when BETFI continued to collapse and there was no intermarket support from equity markets for EURRON strength.

BETFI and EURRON connection has been working for more than 5 years now. A strong equity markets witnessed a strengthening EURRON and a turn from JULY 2007 in BETFI coincided with the weakness in EURRON. Fifth. Time cycles also suggested that that the move down (SLIDE 3) was more of a B counter trend with another C leg up pending. We moved to an anticipated positive view above 3.6 and highlighted potential upmove first till 3.84 and then higher till 3.92-3.93 levels. This is what happened as prices made a new intermediate high at 3.98, just shy of the psychological 4 levels.

Now what? Though prices seem to have hit minor and intermediate resistances at 3.98 levels with a WEEKLY KEY REVERSAL (SLIDE 2) to boot, EXPANDED FLAT are more regular than NORMAL FLATS (RIGHT). This is why current resistances at 3.98-4 are KEY if the anticpated multi month down trend has to pan out. We also would expect a move up on BETFI and gobal equity markets to bottom in OCT for the antcipated preferred intermediate view to hold.

The latest WAVES.FOREX carries more anticpated happened cases on British Pound GBP (TARGET AT 1.7 HIT), YEN (anticipated negativity strengthened) and EURRCHF (Cracked down from anticipated turn at 1.6). Hungarian Forint did not stop at our anticipated targets at 180 and pushed higher and so did Croatian Kuna. EUR DOLLAR failed to hold above KEY 1.38 anticipated supports and is now at 0.618 KEY FIB levels.

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MSFT and THE TECH BUST - Part II

Economic busts are very strange. Though they are very fast and ruthless, one tends to hear and feel them for decades. The vibrations continue to stay in the system and the love which turns to hate rarely returns. Microsoft may be a great company, but the TECH bubble left it shaken. The stock price got into a multi year consolidation and never dared to reach 2000 highs.

Now that we are facing the other bust, the credit bust, the old tech dust has also got stirred up a bit. Microsoft’s multi year text book consolidation seems ready to break down. The last few trading weeks has pushed the stock over the edge back to Dec 2000 low. Technology is an early economic sector and should underperform most sectors, barring financials and discretionary, which are part of the same early economic cycle sector. We will not be surprised if the stock actually tanks down below psychological 20 to near 14 levels. This is classic A-B-C circle corrective down, whose time seems to have come.

Now if Microsoft cracks, most technology sector would see selling pressure. This is why OCT low might need more than a few trading sessions to hit some significant base. And we will not be surprised if OCT low actually stretches till the last week of OCT and maybe further. This case seems more obvious, as bottoms don’t generally witness ‘V’ shaped recovery. So even if we see a bounce, a retest and multi week stagnation can not be ruled out before the sustained upmove starts.

The only positives now left in our DOW 30 tracker are BAC (Bank of America), KRAFT FOODS, MAC and WALMART. We have new change of RECO from positive to negative on COCA COLA, PFIZER, P&G and J&J, all of which cracked last week. Rest of the DOW’s 12 stocks made most of the last week’s panic, when DOW crashed back to 2002 and 1998 decade lows. We are not out of the woods yet. The bust vibrations may take a while before we get our proverbial respite. Meanwhile get ready for the new version of MICROSOFT FLOORS.

Enjoy the latest WAVES.GLOBAL

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WAVES.GLOBAL - WAVES.GLB is a perspective product published on Monday. The report highlights top GLOBAL indices and emerging market indices viz. Dow Jones Industrial (.DJI), S&P 500 (.GSPC), German DAX (.GDAXI), Russian IRTS (.IRTS), Shanghai Composite (.SSEC), Nikkei 225 (.N225), Brazil BOVESPA (.BVSP), Indian Sensex (.BSESN). The product covers all the DOW 30 stocks. The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools, sentiment indicators and other alternative research tools like INTERMARKET to spot outperformers and market trends.

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Agricultural CYCLES

Give a choice, humans would like to erase the down part of the cycle. Living with an up cycle is convenient. But the balance of nature is very intricate, and we as masses don’t understand it. This is why it is hard to appreciate growth and decay in markets. What we accept as natural, we fail to relate to in our economic life. Why this disconnect?


There are few reasons. First, we think we are too important, maybe more important than nature. Second, our knowledge is limited. Third, we are emotional, self involved, overconfident and shortsighted. So understanding large down cycles is simply incomprehensible. The connections between nature, market behavior and economics have been written for decades. The Nile flood - drought cycles fluctuated every 18.6 years. The behavior had a strict periodicity to be just a random chance. But the cycle ended after a dam was built on the river. The river Nile cycle might have harnessed by human ingenuity, but there are many cycles beyond our reach. And even the best efforts of man can just delay them, marginally. We attempt to push out the decaying cycle, sometimes wishfully, out of our life, but then the cycle exerts itself and overpowers us.

Food cycles have been linked with drought and flood cycles for a long time. Based on data collected from 1680 till 1790, Duvick and Blasing (1981) concluded that droughts are cyclical and may occur twice per century. Studies have also proved how food cycles are linked to weather and climate cycles, which in turn have a strong connection with sunspot cycles. Sunspot cyclicality has witnessed a periodicity of 9.3 years. The activity has been monitored for 400 years. And it was an economist William Stanley Jevons who first suggested that there is a relationship between sunspots and crises in business cycles. He reasoned that sunspots affect earth’s weather, which in turn, influences crop yields and, therefore, the economy. Since 1991, the Royal Observatory of Belgium keeps track of sunspots as the World data center for the Sunspot Index.

And evidence continues to mount that the most significant changes in earth’s climate can be traced to the effects of solar activity. To illustrate sunspot numbers were plotted along with the levels of Lake Michigan and Huron. A correlation was seen between sunspots and lake levels. Climatologists have long found a connection between solar activity and climate. And if the sunspot cycle is fairly predictable, climate cycles must be for real and if that’s true, we have a base for explaining Agricultural cycles and agricultural commodity prices.

But we as humans give less weightage to simple observations. Markets look at myriad factors in the grain and bean complex rather than a single cause. These factors include production techniques, government policies, changing demand patterns, and worldwide politics. But it’s the weather and climate change, which are the most important. Cycles are average periodicities found in historical data. Often these occurrences were either longer or shorter than average. The more consistent the cycle, the closer all occurrences come to the ideal period. Understanding of agricultural cycles, and the factors contributing to high and low can help an investor or farmer understand how favorable weather can enhance production leading to a drop in prices and vice versa.

And apart from the large 50 year drought cycles, cyclists have studied short term cycles in agro commodities. There are 39- 44 month soybean cycles. Some other interesting aspects are that major bull markets in corn and beans don’t come more than 48 month apart. Rises in beans generally takes over three years with the first year rise around 25%. Soybeans exhibit 18 year cycle bottoms. Four good growing seasons are rare. And links have been even seen in volcanic and agricultural cycles of 9.3 years, which also are seen in sunspot cycles. This all might look strange, but the complexity has an order.

Sugar cycles can be explained from a market sentiment point of view. If we take the S&P sugar Index, historically the Index has underperformed both DOW and the Indian Sensex. But sugar started outperforming DOW and Sensex from May 2007 and Oct 2007 respectively. A positive society tends to be happy and health conscious. This is the reason rising equity and secular uptrend generally sees a fall in sugar consumption and vice versa.

Building on the case of food cycles, intermarket ratios also highlight underperformance and performance cycles. S&P agricultural index, a composite of all agricultural commodities has been underperforming DOW since 1974. And just like Sugar the composite index has started outperforming DOW from May 2007. Since 1975 the agricultural composite has underperformed the CRB commodity index, suggesting that agricultural commodities performed the worst among commodities are were out of favour for investors. This too seems to change, as the agricultural complex starts to deliver. Agricultural commodities have caught up with alternative energy index NEX and are now at parity with alternative energy performance. But compared to Oil and Gold, agricultural commodities continue to give subdued performance. Agricultural commodities have underperformed Gold and Oil since 1999 and 1970s respectively.

On the price performance basis though agro prices are off their historical highs with Wheat down 40% (Since Feb 2006), Sugar down 35% (since Feb 2006), Cocoa down 16% (since Jul 2008), Cotton falling since 1995 (down 87%), Corn down 31% (Since Jun 2008) and even Coffee, which we gave a positive view in March 2007 (after which it turned up 60% from sub 100 levels to 160) has also retraced 20% from its historical (since Feb 2008). But despite these down moves agricultural commodities have weathered the equity recession and the composite agro index is already positive for the year. This was owing to the recovery in Sugar, Cocoa, Corn and Soya. This means two things, first that the food crisis maybe far from over and second agricultural commodities remain an outperforming asset as the agricultural cycles start to look up. Another reason for agricultural complex outperformance might also be the bottoming 9 year sunspot cycle, a strange fundamental cycle, we might never understand, just experience.


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