Bonds & Notes Sell Signal Intact; Stocks Prepare for Jan ’22 Cycle Peak.
Outlook 2022/2023 – Paradoxes
10-28-21 – One of the most perplexing enigmas in the economy right now is the shortage of workers compared to available jobs. There are many reasons purported to be driving this challenge but I contend that the biggest one is the surging stock market of the past 18+ months.
Before dismissing that hypothesis, let me explain a few key points and also address a couple less credible ones…
There are those that want to blame this phenomenon on inflated unemployment benefits. While that has certainly been the culprit in some of these cases, one critical factor arguing against that conclusion is timing. In June & July 2021, the economy added about 1 million jobs per month. As that time frame was culminating, many states began curtailing enhanced unemployment benefits.
By Labor Day, most enhanced benefits were gone. However, the biggest drop in payroll numbers came in Sept. – when the economy added less than 200,000 jobs. That downtrend began in August.
As a result, the argument linking the two would have to say that when the spigot was turned off, workers suddenly stopped looking for jobs. That is nonsense.
Another piece of data might reveal a truer connection. US Bureau of Labor statistics show that in Sept. 2021 there were 3.6 million additional workers out of the labor force – who confirmed they did not want a job at this time – than at the same time in 2019. That appears to be obvious.
Looking a little closer at that data, it reveals that 89% of those 3.6 million former workers are 55 and older. Hmmm…
What part of the population is at greatest risk of catching Covid and/or suffering the worst symptoms if they caught the virus?
And what part of the population is closest to retirement age?
And what part of the population saw the biggest gains in their retirement portfolios over the past 18 months?
The answer is: The part of the population that is 55 and older!
While this demographic might not remain out of the workforce indefinitely, there are many who have opted for early retirement or at least decided to live off their investments for a prolonged period of time.
Paradoxically, the primary thing that might prompt them to rethink that decision would be the stock market – and by extension, their investment/retirement funds – taking a serious hit.
The only problem with that scenario is that corporations and employers do not sit around waiting for a change of heart like that. Instead, they find ways to better automate and/or eliminate certain jobs… never to be needed again.
Just as the 2008/2009 meltdown ushered in major shifts in the economy, real estate, and the resulting stocks of many companies, so too the 2020/2021 pandemic and reshuffling of the US economy is already ushering in major shifts.
Triple Whammy
One of those shifts continues to play out… even though it might only be in its early stages. Three key factors combined to create a Perfect Storm of urban flight in 2021:
— Covid-19 and its prompting of social distancing principles… not only on an individual basis (6 feet apart) but also on a family basis (suburbs).
— Civil unrest exacerbated the uncertainty of many city dwellers in Summer 2020 and the suburban real estate market of 2021 continues to confirm that.
— Remote working possibilities – spurred by the pandemic – prompted many employers to adapt to, and ultimately embrace, the benefits of ‘satellite offices’. As they reap the cost-saving rewards of that shift, many of those companies are not in a hurry to go back to the status quo… even if they don’t allow ‘work from home’ to go on endlessly.
This is one of those shifts that takes years to play out. First there is the initial exodus from cities – reducing the tax base and the potential pool of office renters. Cities and high-rise office buildings can contend with that for a while… assuming that everything returns back to normal in a couple years.
But what if it doesn’t?
What if a paradigm shift has taken hold?
What if a shift that was already going on prior to 2020, but only very subtly, was spurred into an accelerated phase in 2021?
Well, that could usher in the second and third and fourth phases of urban flight. As the tax base drops, taxes will inevitably be hiked to make up for the shortfall. And that will steadily spur a second exodus as more and more people – and businesses – find the already-expensive cost of operating in a city to finally be too much… and then look outward.
At some point, office buildings, apartments, and other rent-dependent entities struggle or become insolvent. And the tax base shrinks some more. Maybe a bad flu season adds more uncertainty. Or another round of civil unrest emerges (which has been flaring up every few years; 2020 was by no means an anomaly). More on this topic in the coming months/years.
Solar Cycle Update
For the past ~3 years, INSIIDE Track has described expectations for Solar Cycle-related events in 2020 – 2024. That began with projections – described in early-2019 – for late-2019/early-2020 to repeat an uncanny ~11-Year Cycle of ‘Global-Shaping Events’ and ‘Stock Panic Cycles’. That was powerfully fulfilled with the onset of a global pandemic and stock ‘crash’.
Another related expectation dealt with analysis for intensification (in frequency and magnitude) of earthquakes in 2021 – 2022 and volcanoes in 2022 – 2024.
A third expectation, elaborated in recent months, is for a significant solar storm to impact Earth in 2022 – 2023 with the potential to cause damage or disruption to power grids and communication networks, both ground and space-based.
Well, 2021 could be providing another precursor event. According to spaceweather.com:
10-27 – 21 – “SIGNIFICANT X-CLASS SOLAR FLARE: There was a global eruption on the sun today. It started with a powerful X1-class solar flare from sunspot AR2887. The blast created a massive tsunami of plasma in the sun’s atmosphere, which rippled across the entire solar disk. A CME is probably heading for Earth, raising the possibility of a geomagnetic storm on Halloween.
More information and updates @ Spaceweather.com.”
While that isn’t expected to materialize into the magnitude of solar storm discussed in recent months, an X-class flare is the highest of the three classifications (C, M & X-Class flares) and could cause some radio blackouts and related auroras. A similar flare occurred two weeks ago and is reinforcing that the Sun is definitely awakening in its latest up-cycle
To reiterate from last month, 2023 is the greatest synergy of solar-related long-term cycles and includes recurrences of the ~11-year cycle, 17-year cycle (of solar events) and corresponding 34-year cycle of solar events and is directly linked (by these cycles) to massive solar storms in/on:
Oct – Nov 1903 (‘Most significant storm – during a solar minimum period – on record.’).
May 1921 (‘Most intense geomagnetic storm of 20th century’).
Jan 16 – 26, 1938 (Fatima Storm; Massive storm that disrupted all transatlantic radio communication).
Feb. 1956 (Acheron Submarine Storm)
Aug 1972 – Fastest moving CME and most extreme Solar Particle Event in recorded history (‘most hazardous to human spaceflight’ during the Space Age).
Mar 1989 (Quebec Blackout Storm) – Massive storm that disabled the entire Quebec power grid.
Dec 2006 – Major (X-9) Solar flare (strongest in ~30 years) that seriously disrupted satellite-to-ground communications and GPS navigation signals.
It is also ~11 years from the 2012 storm that was allegedly as powerful as the 1859 Carrington Event… but missed Earth by a mere 8 days. Cyclically speaking, 2023 is the best chance for a major storm…
Stock Indexes, on a 3 – 6 month basis, continue to trace out more of a sideways pattern since peaking during the latest phase of the ~16-Month Cycle in May/June ‘21. As stressed throughout this period, that does not include every stock or every index. Tops and bottoms rarely occur in tandem. Even the early-2020 peak stretched out over a 4 – 5 week period… before a 4 – 5 week plunge.
16 months before Jan/Feb. ‘20, in Sept/Oct. ‘18, equities did the same thing with some peaking in early-Sept, others in late-Sept, and the strongest ones in early-Oct. – before all of them entered a 2 – 3 month sell-off. And much of what is unfolding now, and whatever unfolds in the next 1 – 2 months, should have a strong bearing on what to expect in Sept/Oct. ‘22 – the next phase of that 16-Month Cycle.
In the interim, focus has also been on the midpoint of that 16-Month Cycle – coming into play in Jan/Feb ’22 and expected to time a multi-month peak. As corroboration to that, an intervening multi-week peak was forecast for early-Sept ‘21 – 4 months from the early-May ‘21 peaks in indexes like the DJTA.
A multi-week peak in early-Sept ‘21 would increase the likelihood for a multi-month peak in Jan/Feb ‘22 that would increase the likelihood for a subsequent peak in Sept/Oct ‘22 – the next phase of the 16-Month Cycle. A 3 – 6 month peak in May/June ‘21 was expected to do the same thing.
Most of the indexes fulfilled the May/June ‘21 cycle peak, triggering 15 – 30% corrections in a diverse array of sectors and stocks. Those stocks and indexes – with the DJTA in the lead – were projected to initially bottom during the week of July 19 – 23, with July 19 forecast to create a blow-off low in a majority of stocks. That was followed by a similar spike low on Aug 19 and a related spike low – projected for the DJTA and weaker indexes – on Sept 20.
The Russell 2000 peaked in March ‘21 and has been in a sideways correction since then – remaining within a relatively narrow trading range between ~2360 at the high and ~2100 at the low. During each sell-off, the Russell 2K has been unable to turn its weekly trend down – indicating that new highs (above the Mar ’21 peak) are likely to be seen before a more substantial sell-off becomes possible.
That (potential) new high would also be confirmation of a wave ‘5’ rally of which the overall 5-wave advance began in March ‘20. In 2021, the Russell 2K set its initial peak on March 15 and a secondary peak, 12 weeks later, on June 9. Another 12 weeks after the June 9 peak, it set another intermediate high on Sept. 3. 12 weeks from that high is Nov. 22 – 26.
The S+P 500 & Nasdaq 100 waited until Sept. ’21 – 4 months from the May ’21 cycle high and 4 months before a related cycle high in Jan ’22 – to set a higher peak while most stocks and indexes set lower peaks. In doing so, they fulfilled their weekly LHR indicators that portended 1 – 2 month peaks in the first half of Sept. (see Sept ’21 INSIIDE Track for details).
That led to the largest sell-off in the S+P 500 since Oct. ‘20 and the largest in the NQ-100 since Feb. ‘21. As they spiked to new lows on Oct. 1/4 – in sync with daily cycles and weekly trend patterns – it became apparent that a multi-week rally could follow. That was reinforced by the DJTA exhibiting more bullish signs as it turned multiple trends up in early-Oct.:
10-09-21 Weekly Re-Lay: “Stock Indices are rebounding with the S+P 500 & NQ-100 bouncing from new multi-month lows set on Oct 1/4 while most other stocks and indexes are continuing their overall rallies from the Sept 20 weekly cycle lows.
In those indices, secondary lows (‘b’ wave lows) were set on Oct 1/4 and ushered in the projected ‘c’ wave advances that are now unfolding – with price action showing additional upside is still possible.
The DJTA – which has been leading this rebound since bottoming in perfect sync with weekly cycles on Sept 20… remain capable of extending gains…”
However, it was the S+P 500 that gave the most reliable signal by correcting far enough and long enough to twice neutralize its weekly uptrend… but not far enough to turn that weekly trend down. That showed some lingering resilience and altered expectations related to the extent of an October rally.
It bottomed on Oct 1 while fulfilling its initial 2 – 4 week downside target at 4264 – 4274/ESZ (setting a low at 4260/ESZ) and testing/holding its rising weekly 21 Low MAC. The weekly trend signal projected a rally back to (at least) the highs before another multi-week peak would become more likely.
10-16-21 Weekly Re-Lay: “That is corroborated by the weekly trend action in the S+P 500. That index could not turn its weekly trend down – while dropping right to its weekly & monthly HLS levels (4264 – 4274/ESZ was the downside target for its Sept. ’21 sell-off) AND its rising weekly 21 Low MAC on two consecutive weeks – before resuming its advance.
That pattern projects a retest of its high (4539/ESZ) and triggered the latest rally at the same time the DJIA & NQ-100 weekly trends…”
As that rally was unfolding, the DJTA turned its weekly trend back up – signaling that the Sept 20th low was the bottom of its 4+-month correction – its largest correction since 1Q ‘20 and its longest correction since 4Q ‘18 (all linked by the 16-Month Cycle). On Oct 15, the DJTA closed back above its weekly 21 High MAC for the first time since late-June – also hinting the Sept 20 low was a significant bottom.
In all of these indexes, there is likely to be more whipsawing – back and forth – between now and the next multi-month cycle high (likely in 1Q ‘22). The NQ-100, Russell 2000 and other indexes have the potential for another intermediate low in early-Dec. ‘21.
1Q ‘22
Not only is 1Q ‘22 (most synergistic in Jan/Feb ‘22 and ideally in Jan ‘22) the convergence of a web of 16, 8 & 4-month cycles, it is also the latest phase of the most consistent cycle of this century – the 3.25-Year Cycle. That cycle was last involved in creating the Dec. ’18 low and projecting an overall advance into 1Q ’22 – when the next phase should invert and time a 1 – 2 year (or longer) peak.
That would fulfill a 3.25-year low (1Q ‘09) – low (2Q ‘12) – low (3Q ‘15) – low (4Q ‘18) – high (1Q 2022) Cycle Progression.
And that would also dovetail with the 2-Year Cycle that was detailed extensively in 2018 and again in 2020. Both times, it created peaks in Jan/Feb of those respective years – as well as subsequent peaks in Sept/Oct ‘18 & ‘20 – and is on track to create a similar peak in Jan/Feb ‘22.
So, there is quite a bit of synergy coming into play in 2022 as equities remain above multi-month and intra-year support levels during recent corrections. That does not, however, preclude the potential for another sharp sell-off in Nov ‘21 (potentially stretching into the first half of Dec. ‘21).
The NQ-100 bottomed above support (~14,100) and has since rallied back to the highs – signaling a wave ‘5’ of its own (though on a different magnitude than that of the Russell 2000) – stemming from the Mar ‘21 low. That is why the Oct. rally was stronger than expected. Since initially peaking in Feb. ’21, the NQ-100 has had three successive corrections – each one bottoming right at the rising weekly 21 Low MAC.
The second and third ones represent the ‘2’ and ‘4’ wave corrections in the 5-wave sequence that has unfolded since the early-Mar ‘21 low. The weekly trend shows that this latest rally does not have the same underlying strength as its predecessors – another earmark of a wave ‘5’ rally. As a result, it might not spike too much higher than the early-Sept high.
3 – 6 month & 6 – 12 month (and even 1 – 2 year) traders and investors should have been lightening up on long positions in early-Sept…
Bonds & Notes sold off into Oct 21/22, when daily & weekly cycles as well as trend patterns projected an intermediate low. That outlook was described in the Oct 20 Alert, titled ‘Interest Rates Nearing a Peak?’. The intermediate outlook was reiterated in the ensuing Oct 27 Alert (‘Interest Rates Confirming a Peak?’):
“Bonds & Notes fulfilled near-term and intermediate price and timing expectations by bottoming on Oct 21/22 and reversing higher this week. Bonds retested their recent low and set a double bottom last week, fulfilling the daily trend pattern that was necessary before a low and reversal higher could take hold.
At the same time, Notes retested their May ’21 low (130-01/TYZ) and monthly support – a decisive range of support levels that were poised to usher in a low.
That action – in both Bonds & Notes – was signaling they were completing ‘5th wave’ declines on a slightly higher magnitude and were poised for a larger rally. Notes reached the downside objectives for that wave projection – attacking a combination of wave targets, multi-week HHL objectives and the Oct. ’21 Intra-month PHHS and creating the potential for a bottom.
At the very least, this should spur rebounds into Nov. 3 – 5 – perpetuating a ~30-day/degree cycle.”
The reason for discussing that near-term analysis is the ongoing realization that Bonds & Notes have declined in a 5-wave structure (on multiple levels) since peaking in July/Aug ’21 and perpetuating an ~11-month low (Oct ’18) – high (Sept ’19) – high (Aug ’20) – high (July ’21) Cycle Progression. The weekly trends corroborated that scenario, reversing down before an initial low took hold.
Both of those patterns (Elliott Wave and weekly trend) normally spur a multi-week, ‘a-b-c’ rebound during which the weekly trends could turn neutral but should not turn back up. That is the outlook for the coming weeks as Bonds & Notes are poised to rebound into Nov. before a new wave down takes hold.
On a broader basis, Bonds & Notes are steadily validating the overall outlook for 2020 – 2023 in which interest rates have been forecast to slowly rise in response to developing inflation and other factors, reinforced again by today’s inflation data. Continued shortages – in every thing from housing to automobiles and chips to human workers – are likely to perpetuate some of that price inflation into 2022.
The Bond peak in July ’20 perpetuated an uncanny 4-Year Cycle that timed multi-year highs in July ‘12 & July ‘16 and preceding lows in mid-2004 and mid-2008. That cycle projected that interest rates would slowly rise (and Bonds fall) in 3Q ‘20 – 3Q 2022, possibly extending into 2023.
Longer-term investors and hedgers could have been liquidating long positions in Bonds & Notes and selling on intermediate rallies in 3Q/4Q ‘20… and should have added to short positions in Aug ‘21.” TRADING INVOLVES SUBSTANTIAL RISK!
Bonds & Notes fulfilled projections for a rally from March ‘21 into July/Aug ’21 – when a new selling opportunity emerged in line with cycle highs. That should lead to a new and sharper decline into ~3Q ’22 (that is likely to begin weighing on equity markets in 1Q ’22). They fulfilled price & timing analysis for a multi-year peak in ~July ’20 and should drop into at least 3Q ’22 (1/2 of 4-Year Cycle; with Oct ’22 representing a 4-year low-low cycle)… and ultimately (likely) into 2Q ’23.
Many factors are portending a second surge into 2022… coinciding with multiple natural and geopolitical cycles. War Cycles are also in the mix, ushering in a tenuous time in 1Q ‘22. Corroborating this, many stock indexes were projected to peak in May/June ’21. A future peak (Jan ’22 is most synergistic) could reinforce that a major top is forming and represent the final peak before ‘Crash Cycles’ kick in (2022/23). Chinese stocks are leading the way, having peaked in early-2021 and entering what should be a multi-year decline. They were expected to set an initial low in Aug ’21 and then bounce.
2021/2022 was expected to usher in a dramatic shift in multi-decade cycles (40-Year & 80-Year Cycles) – timing everything from War (late-2021 into late-2025), Climate (Drought Cycles peak in 2021/22 and shift to Deluge Cycles in 2022/23), Agriculture (80-Year Cycle shifts in 2022/23), Currency Wars (2021)… and Interest Rates. The final year(s) of a 40-Year Cycle of Drought (into 2021/2022) could sustain commodity inflation into 3Q/4Q ‘22… keeping negative pressure on Bonds.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.