Recently I was reading a sidebar in Barron’s where ex-fund manager and PIMCO director, Paul McCulley, was talking about a stock market peak later this year… at the same time sunspot cycles are forecast to peak. We’re talking between May and September here.
This wasn’t the first time I’d heard respected analysts connect market activity to sunspot activity. Charles Nenner, a prominent cycle analyst believes there’s a plausible connection. So does Robert Prechter.
With McCulley joining the growing ranks of believers, it got me thinking… is there something to this theory? Do sunspot cycles affect the stock markets in any way? (Crazy, I know… but first, I’m no stranger to being called crazy and second, success isn’t found inside the box.)
As you know, NASA tracks and projects sun spot activity. It’s discovered that movement on the sun’s surface ebbs and flows in cycles (just like everything else in life). As the cycle unfolds, the earth is bombarded by more or less solar radiation. The high cycles can knock out satellites and communications systems.
Of course, rising and falling energy cycles certainly could have some impact on human behavior…
What was more interesting to me though was that this sunspot cycle is reputed to peak every 11 years. So I went back and documented the peaks back over a hundred years only to discover that the real average is 10.3 years.
That’s when I got really interested.
You see, there’s another cycle we follow closely, one first documented by Ned Davis. It’s actually a critical cycle in our research. It’s called the Decennial Cycle and it tends to peak around the end of each decade and bottom in the second year of that decade. So there was a peak in early 2000 and a bottom in late 2002.
The cycle then remains weak for stocks until the middle of the decade (i.e. late 2004 or late 2014), and then rises again into the end of the decade.
Whether such cycles bottom earlier or later in the first few years of every decade has been related to when the four-year presidential cycle bottoms. That’s why we had major bottoms in 1962, 1970, 1982, 1990 and 2002.
These two cycles together – the 10-year Decennial Cycle and the four-year Presidential Cycle – created our best intermediate patterns for decades. The last time these two cycles should have bottomed together was late 2010 and a major crash and recession would have been expected between 2010 and 2012. But that didn’t happen…
When the economy weakened in 2010 to near zero growth, the Fed stepped in with QE2. It did it again in mid- to late-2012 with two phases of QE3. All of which, we assumed, threw the otherwise reliable cycles out of kilter.
Or is there another explanation…?
As I said before, the average sunspot cycle is 10 years. The last top was in early 2000… right at the top of the tech stock bubble. The sunspot cycle bottomed years later than normal, and would you believe it?! The recent stock market crash bottomed in early 2009… at exactly the same time the sunspot cycle bottomed.
Now NASA predicts the present sunspot cycle will peak later than usual… around mid-2013. And would you believe it?! That’s when our current analysis of stock patterns suggests we’ll see a top in the markets. We thought the Decennial Cycle failed for the first time in 50 years, but if sunspots are the cause, we just got an eccentric cycle that points down from mid-2013 into late 2019, when our Spending Wave and Geopolitical Cycles also point down at the same time.
This certainly is not the reason we have been looking for a top in the June/July range. But it is good to know that the sun’s got our backs here.
Honestly, who knows exactly what the sun has to do with the stock market movements, but the correlations are just too good to ignore.
Bottom line: prepare for a downturn to start later this year and for a larger stock crash to occur somewhere between mid-2013 and early 2020, with the greatest danger coming in the four-year cycle from late 2013 into late 2014, and late 2017 into late 2018.
P.S. We discuss many of the other cycles we follow and use to help us see ahead of the curve at Demographics School this April 24-25. With just a month to go, we’re discounting the registration price by $100 until midnight tonight. We’d like to see you there, so click here now.
Ahead of the Curve with Adam O’Dell
You already know I love cycles… but I certainly don’t swear by them. Sure I keep a close watch on them, and I use various tools – including one particular algorithm (that I keep tightly under wraps) – to tap into the cyclical rhythms of the market.