Jan 2, 2017

Long term - update

Happy New Year!!!!

I hope you had pleasant holidays and recharged the batteries. I wish you great trades in 2017:) and very successful year!!!

It is time for the next long term update. There is no huge surprises - stocks are higher, bonds high probability that the bull market is over, PM are correcting, energy sector stronger than expected, only the USD surprised a little bit it broke out of the range 1-2 months earlier and it does not look like a triangle now.

When I look at the markets I see the same message from USD,stocks,Bonds,PM charts - we need one counter trend move and one more move in the direction of the current trends before they are finished. At the moment I expect this moves to develop in Q1/Q2 of 2017 and later in Q2 should start the transition from "risk on"(stocks,USDJPY) trade to "risk off" (PM,Bonds) trade.

The indexes continue moving higher. If you count the move from February as corrective than the bull market is definitely not over(a trend does not end with correction higher) and if you count it as impulse after a correction in Q1 it should continue higher in Q2. So in the next 6 months I am not mega bearish, I will just follow the market.

I am not sure if this is an impulsive wave, but I do not see a finished pattern either. So I expect more to the upside. Currently I follow this long term chart and later it will be adjusted if necessary.

Cycle analysis - both analysis peak-to-peak and trough-to-trough seem to work fine and show similar picture average 7 year cycle with length 6.5 to 7.5 years and the shorter cycle 3 to 4 years.

Trough-to-trough analysis - the next important lows in H2 2019 and 2022-2023.

Peak-to-peak analysis - the next important high is in late 2018.

I was expecting a secular top for the bond bull market and we have really powerful move lower. It looks like impulse and we should nearing the bottom of wave 3. In the next 6 months we should see wave 4 and 5 lower.

Weekly cycle chart - EW points to wave 4 and 5, the cycle says we need another 6-7 months for important 3,5 year cycle low.

Below long term cycle charts - both analysis peak-to-peak and trough-to-trough seem to work. The cycle runs between 3,5-4 years.

Trough-to-trough analysis - the next important low is expected in Q3 2017

Peak-to-peak analysis - I think we have secular top behind us.
The next important peak is around Q4 2019/Q1 2020 at this time the indexes should make their 4 year cycle low... just a coincidence:)

The USD was looking for a long time like a triangle, but it broke out higher. The big picture has no changed the sideway move was wave 4 as expected and currently the USD is in iii of 5 so we are waiting for waves iv and v of 5 in Q1 and Q2 2017. The top of this wave should be a major 16 year cycle top.

P.S. interesting is if you look at USD long term chart you will see very nice rhythm 7 years lower (1985-1992/2001-2008) 9 years higher (1992-2001/2008-2017?) It looks like after a top in 2017 it is time for the next 7 years lower.

EURUSD is mirror image of the USD. The final wave lower is running before a major 16 year cycle low. Chart from SilentOne.

USDJPY is interesting for risk on/risk off trade and PM which have very high inverse correlation. In the previous post I wrote to expect 4 year cycle low and move higher - there we have it... surprisingly strong. Such strong moves (right translated cycles) usually are followed by another higher high (M pattern) and reversal. The cycle analysis and EW support it so I expect a pullback and another higher high in Q2 before a reversal.
In the previous two posts I have shown long term peak-to-peak and trough-to-trough analysis with 8-9 year long cycles. Now closer look the last 8 years.

Peak-to-peak the shorter cycles are with length 1 year(12-13 months). Currently we are in the middle of such a cycle and the top should be in June-July 2017.

Trough-to-trough similar picture length 1 year (11-12 months). Currently week 18 of the first 24 week cycle. Strong right translated move so I expect the second 24 week cycle to make higher high before turning lower for yearly cycle low.

I was expecting PM sector to squeeze one more move higher and then to correct lower. That is exactly what happened... now we are searching for the bottom. Long term I think the sector is in secular bear market and currently we are in cyclical bull market for a few years.

The problem with the bottom is the move lower looks like finished double zig-zag, but cycles and inter market correlations say the bottom should come later next year. I think it will be some kind of a sideway move with higher low this scenario fits better.

Long term peak-to-peak analysis. Commodities move roughly 10 years higher and 20 years lower. For me 2011 is secular top 2001-2011 were this 10 mega bullish years. Currently this should be cyclical bull market until late 2018.

The next important low should be around July 2017. Around this time bonds should make important low and USDJPY important top.... is this a coincidence? I doubt. It is way too early for a bottom... one option is lower low, another we will see a sideway move before PM blasting higher for the next leg of this cyclical bull market.

The EW count - I have already posted counts with a double zig-zag. Now this double zig-zag is finished, but cycles says it too early. The two options I see are sideway move with higher low (yellow 1-2) or we have impulse lower(red - sideway/higher for 2-3 months) which will make a lower low and finish the bear market from 2011.

Gold miners are stronger. The double zig-zag is well visible, but again the 18 month cycle low should be later in March 2017.

This is a screenshot from SilentOne's webinar cycle analysis PM and gold miners with EW annotations from me. I am trading the gold miners that is why I am analyzing PM at all and the chart below is very interesting.

BMGI index long term chart of gold miners. We have 14-15 year cycle bottom-to-bottom. Since 1971 the USD is no more coupled to gold and the moves are very volatile. What I see except that it is very difficult to predict the pattern:)
- In one 15 year cycle there is two moves higher and two moves lower.
- there is more to the upside in the next few years. Gold miners just made 15 cycle low and this they are still in this first move higher.
- there is more to the downside after the move higher is finished. I do not think 5 years correction(2011-2016) is long enough to correct 40 years move (1971-2011)

EW - I think we have huge A-B-C. You can argue that the top of wave C was in 2008 and we have expanded flat finished in 2016, but I do not think this changes the big picture. I think the next major low will be around 2030-2031 when gold makes secular bottom (this 20 years lower for a commodity cycle) and 20 years correction for 40 years move higher looks better than 5 years. In this case we should expect corrective wave B or X for several years probably some kind of a zig-zag (two moves higher in a 15 year cycle).

The energy sector was stronger than expected. I was expecting a zig-zag, but the move was more a sideway/upward move. Thanks to posts from SilentOne now I have working cycle models for Crude Oil and Natgas and the analysis should be better:)

The longer term forecasts has not changed - commodities move roughly 10 year higher and 20 years lower. The 10 year higher are behind us and secular bear market is running. Currently in cyclical bull market - crude oil should move higher for another 2-3 years, but with corrective waves. Below long term charts with cycles.

Peak-to-peak cycle analysis.

Trough-to-trough cycle analysis.

Now we should see a move lower then higher and another move lower.... I think 2017 will be difficult to trade Crude Oil. I suspect we will see wave B sideway move....

Natgas - much stronger than expected, but now I think I know why:) - peak-to-peak analysis is working like a clock and this strong move should be 11 year cycle high. It has very accurate sub-cycle length 2 year and 8-10 months. This is the fourth cycle from the top in 2005 and it should be an important top. So rough year 2017 for Natgas too it should move lower most of the time.

For real speculators who are not scared to take a risk and make big money:) Charts which will help you to trade XIV/UVXY(TVIX).

You can trade the corrections, but once per year XIV makes important low and this is the time to make a big bet.... of course the indexes should be in a bull market.

UVXY(TVIX) - I think the time to trade it is only once every 60-70 months. The move develops as two legs higher. It is more secure to trade the second leg when the correction for the indexes is in full force and there is fear. Next we should see a bigger correction 18 month cycle low next year and the time is approaching if you want to trade long volatility.


  1. Happy new year krasi! All the ebst for 2017
    Thank you for the amazing past work and this superb longterm update!
    By any chance, would you have a short/middle term update? The indexes have started the 'intermediate' mild correction you mentionned before reaching the q1 local high, do you have any target, can indexes start their rebound right from here?
    Thank you.

    1. No weekly update this time.
      This looks like small corrective wave which should be finished. I do not see the indexes much lower. They should turn higher any moment for 2-3 weeks and than lower for for 2-3 months.

  2. Thanks for the great update Krasi! And great call on the PM miners last year (i looked at your 2015 LT update). From a short term perspective, I can't help but see a descending triangle forming for the Russell 2000, I take it you don't think that is a tradable short?

    1. RUT - a lot of overlapping and RSI resetting to 50. The probability is very high that this is just a corrective wave. The time to short will come after one more higher high and triple RSI divergence. Now it does not make sense.

  3. Thank you Krasi. What exactly is triple RSI divergence? I Googled it and couldn't find a definition.

    1. Usually an indicator makes two tops/bottoms and divergence. Sometimes you have three tops/bottoms with divergence which is even stronger signal.
      It is more accurate to say triple top with double divergence.

  4. Much appreciated thank you for explaining that to me Krasi. So in this particular case we already have two tops and divergence, how did you come to be confident/to the conclusion there will be triple top with double divergence this time? P.s. seems like the correct call based on Tuesday moves, just trying to understand what made you (correctly) divert from red scenario in Dec24 weekly preview.
    Thank you for your time and excellent work!

    1. The move lower is overlapping mess so expect one more higher high for the index(RUT), but RSI will make another lower high (above 80 is way too much it will not gonna happen).

      The red scenario is running, just the move is not so deep(I was not expecting very deep pullback anyway). For the SP500 well visible for RUT just a sideway move.
      You can not predict exactly this small waves and corrective on top of this. I know that something lower is coming and if I want to reload longs I just wait for finished pattern and for better price. This is the idea.

    2. Thank you Krasi. Great explanation, really appreciate your expertise, I'm learning so much from you. At the risk of sounding stupid for posting this tomorrow, is it me or is this rally lacking some oomph compared to past recent rallies? VIX getting crushed, option vols super cheap, but I can't help but feel that we always need a big down move for the bigger 'new high' rallies to follow through for a new wave. Basically trying to say we need short squeezes, but short interest is lower than it's been in a long time + PMs, rates and USD reversing.

    3. This is last small final wave before a bigger pullback. Do not expect something huge or lasting long. You do not need short squeeze just slightly higher high. I just want to see higher high so that the pattern looks finished nothing more. Even intraday high and reversal will be enough.

  5. Oops sorry just realized I am mixing two different indexes with this question..or two different questions.

  6. Amazing, it took less than 3 days for GDXJ to reach the target on your chart :)

    1. Yes strong move impulse from the low which confirms that most likely the correction a-b-c is over and the next low March-April should be a higher low. I just hope it will be a deeper retracement to load more shares on better price:)