Sometimes there are cycles, some cycles are shorter than others.
In chart analysis, we are familiar when we analyze trends. Either short term or long term. The economy does not function only in trends. There are cycles. The most common / important of cycles is the yearly one.
Unfortunately, cyclic patterns may prove tricky to analyze. But they are very important.
Since I haven't taken the time to create TradingView indicators that calculate cycles, I will instead use a spreadsheet.
For the following charts, I basically take all historical data of a cyclic chart and export that data. For every week or month, I calculate the average distance from the mean. With that, I try to calculate the "expected distance" from the mean, for each time of the year. Natural Gas prices one might say, are lower during the summer months. So an unusually high price in summer may become explosive during the winter.
Today's main subject will be money supply. Since the January's M2SL data hasn't yet updated, I will try to guess how much money supply we can expect the following months. There is a cousin to the M2SL index which is updated weekly, and it is WM2NS. This index however as you can see on the chart above fluctuates from M2SL throughout the year. So, the regular WM2NS price should be adjusted based on it's cycle against M2SL.
This curve shows the expected yearly fluctuation of the ratio, compared to the mean,
Specific care has to be taken when we calculate the "fundamental cycle duration". Some cycles last 2 months, 3 months, or 6 months. The fundamental cycle of the economy is 3 months which repeats 4 times during the year. While this may prove irrelevant, It is incredibly important in the "cycle spectrum" creation.
If we consider a 1M duration of the fundamental cycle, the chart isn't as representative as the 2M one.
The Diesel / Gasoline cycle is incredible. This comes to prove that these two are highly correlated. With the same method we can compare gasoline price with crude oil price. For fuel prices, it seems that the end of the year can serve as a good baseline for the outcome of the next year. Absolute and relative are at their minimum in this time of year.
Similar charts can be drawn for DJI. While more chaotic (wider error lines), weeks 10 and 44 (March and October-November) appear as the weakest periods of the year.
So what M2SL price can we expect in the following days? I am an impatient man, I cannot wait for the results!!!
After a substantial drop in money supply, one might fear that further downside is to follow. There are charts that calm such fears. Price has never touched the Quadratic Kernel indicator (a form of historic moving-average), and it may never touch it.
When RRPONTTLD increases, money supply decreases (I am oversimplifying because I don't know the exact specifics).
Bullish stochastics may signal more upside for money supply.
Finally, I will analyze the protagonist chart: Suddenly, the 1.2% increaase doesn't sound that extraordinary...
Sometimes, a simplistic analysis like this one above, may prove correct like this one below:
Final thought: With inflation higher than expected and money supply about to increase yet again, how high of an inflation can we expect? With commodities bull-flagging against money supply itself, and Bitcoin bull-flagging against the Tech-Bubble, things can get pretty bad for equities...
Tread lightly, for this is hallowed ground. -Father Grigori
PS. I have analyzed several cycles for different kinds of commodities. If you are interested ask me so as to post them.
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While some are bracing for impact with aliens and WW3...
I am still here... ...talking about the incoming crash. Everything is ready to play out.
The economy is weak, even if we don't want to believe what we analyze, we have to believe in something in the end, right?
The question arises, do you believe that war comes when countries have everything to lose (strong economy), or when they have nothing to lose (weak economy) ? Do you believe in randomness, or that everything is related? Again, you have to believe in something...
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Note that M2SL has never violated the Nadaraya-Watson moving average.
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One of the problems is unemployment...
And we have seen this before...
One last note: Either you believe that price discounts everything, or you don't. Many fall for the trap of ignoring the 2020 unemployment peak. If we keep it, we see an interesting picture.
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It's fun when I am right, it's fun when I am wrong.
Less money, more problems? Money is a double-edged knife. Money itself is the problem, not it's quantity.
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The Dollar-Black-Hole is open.
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Ah well, I was kinda wrong on my calculations!!! But the movement of the ratio turned out very well!
WM2NS (a weekly-updated M2SL index) is showing the first early signs of bottoming. KST suggests that supply may continue to decrease, but at a slower rate than this fast dip we witnessed last year.
Questions: do you believe that BTC will move up while equities will crash? Why do you think money supply will increse again while the FED still fights inflation?
akikostas
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@Snead, From my charts it appears that the FED cannot possibly fight inflation. The potential for increase in money supply, commodity cost and inflation, seems much higher than the potential for yield increase. Gold*PPIACO (inflation) is increasing against money supply and yields. I believe that the market is fundamentally incapable of fighting inflation. The FED just hikes rates based on what the market prices-in. FED decisions come after observing the market strength. I also believe that Bitcoin may remain relatively horizontal, i.e. that it will remain in levels between 20k and 70k. I expect significant downside for equities however...
Snead
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@akikostas, appreciate your thoughts, thank you! I do not see why there should be more upside for equities now. I expected markets to be lower by now- but Wall Street likes to foul people.
akikostas
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@Snead, Curiously, CURRCIR/M2SL is creating a bull-flag. I am not sure of the exact ramifications, but it doesn't smell good...
PIIBOINS
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I would be very interested to see your "wheat commodity charts" for the coming months and years. Wheat is a big thing but free analyses are very hard to find.
akikostas
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@PIIBOINS, Can you send me any tickers for wheat so as to attempt analyzing it?
akikostas
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@PIIBOINS, I just messed with some charts.. After 2020, world-wide wheat prices broke out of a bull-flag. It can take several years for another one to form (if it forms)
Oil seems to be bull-flagging against wheat. As expected, the same goes for diesel. And a final chart for today... In the future, commodity production will be "cheap" for producers, but commodities will be inaccessibly expensive for consumers.
PIIBOINS
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@akikostas, Hi, thanks for the charts. The more I read the more difficult is to make any sound investing decisions. I was thinking about purchasing wheat but it seems that oil would be better option for the coming years...difficult:)