Transcript Tom McClellan-_Jan_2012

450
445
440
435
430
425
THE
N
A
L
L
E
L
cC
T
E
K
AR
T
R
O
REP
420
415
Prediction and Confirmation
Tom McClellan, Editor
www.mcoscillator.com
Focus on What Matters,
Not on What Doesn’t
Hypothetical Situation:
• US unemployment >9%
• Large federal deficits
• Stock market in downtrend
• Debt default by large US trading partner,
leads to defaults by other countries
Here is the answer as of
November 2011
160
1600
155
1500
SP500
Current Period
150
145
1400
140
135
1300
SP500
1982
1200
130
125
120
1100
115
110
1000
8/12/82, day of
Mexico's default
900
07/06/10
10/04/10
01/03/11
04/04/11
07/05/11
10/03/11
01/03/12
04/03/12
105
100
And here’s how it looks now
170
1360
SP500
Current Period
165
160
1300
155
150
1240
145
140
135
1180
130
SP500
1982
1120
125
120
115
1060
110
8/12/82, day of
Mexico's default
105
100
1000
07/01/11
08/31/11
10/31/11
12/30/11
03/02/12
05/01/12
So, What Matters?
• How much money is there?
• How badly does that money
want to be invested?
Keys to Success
• Know what’s supposed to
happen
• Check to make sure it is
happening
Prediction Tools
• Cycles
• Analogs
• Liquidity Waves
Long Term Cycles:
40ish Years for Stocks, etc.
60 Years for Bonds
16
15
1980
Sources: Foundation for the Study of Cycles
Moody's Aaa from 1919 to present
14
High Grade Corp. Bond Yields
13
12
Mexican
War
11
10
Revolutionary
War
9
1857
SS California
1798
8
1920
7
6
5
1768
4
1824-30
Civil
War
3
1889 1900
2
1
60-Year Cycle
0
1740
1770
1800
1830
1860
1890
1920
1950
1980
2010
40-Year Cycle Elsewhere
Gold Rushes
•
•
•
•
•
•
•
Lead To:
1768 Mexico
1802 No. Carolina
1848 California
1897 Klondike
1933 Mini US Rush
1979 Hunt Bros.
2010s Next Rush
•
•
•
•
•
•
•
Economic Wars
1776 Revolution
1812 (War of)
1861 Civil War
1914 WWI
1942 WWII
1980s Cold War Climax
2020s Next Econ War
Annual Seasonal Cycle
1.4
DJIA Chopped Into 1-Year Blocks
1.3
1.2
1.1
1
0.9
0.8
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
1.1
1.09
Annual Seasonal Pattern
1.08
1976-2007
1.07
1.06
1.05
1.04
1.03
Late
October
Bottom
1.02
1.01
1
0.99
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
1.1
1.09
Annual Seasonal Pattern
1.08
1976-2007 (less 1987)
1.07
1.06
1.05
1.04
1.03
Late
September
Bottom
1.02
1.01
1
0.99
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
JAN
1.15
13500
1.14
13000
1.13
DJIA 2011
1.12
12500
1.11
12000
1.1
1.09
11500
1.08
11000
1.07
1.06
10500
1.05
10000
1.04
1.03
Annual Seasonal Pattern
Averaging data from 1976-2007 (less 1987)
9500
1.02
9000
1.01
1
8500
03/04/11 04/04/11 05/04/11 06/03/11 07/05/11 08/03/11 09/01/11 10/03/11 11/01/11 12/01/11 01/03/12 02/02/12
4-Year Presidential Cycle Pattern
2.7
2.6
2.5
2.4
2.3
2.2
2.1
2
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1936
SP500: 4 YEAR SEGMENTS
2000
1952
1988
1976
2004
1940
1932
Election
Nov. 1st year
Nov. 2nd year
Nov. 3rd year
Election
1.35
1.3
1.25
Presidential Cycle Pattern
1.2
1.15
1.1
1.05
1
0.95
Election
Nov. 1st year
Nov. 2nd year
Nov. 3rd year
Election
1.4
1.35
1.3
1.25
1.2
1.15
Mar. 30, 2010
Health Care Reform
Bill passed, QE1
ends
May 6-7
Flash
Crash
June 30
QE2 ends
1.1
1.05
1
0.95
Presidential Cycle Pattern
0.9
0.85
0.8
SP500 2008-2012
0.75
0.7
0.65
Election
Nov. 1st year
Nov. 2nd year
Nov. 3rd year
Election
1.5
1.45
1.4
SP500 2008-2012
1.35
1.3
1.25
1.2
1.15
1.1
1.05
1
0.95
0.9
Democratic Presidential Cycle Pattern
0.85
0.8
0.75
0.7
0.65
Election
Nov. 1st year
Nov. 2nd year
Nov. 3rd year
Election
Analogs
1600
1500
1400
160
During QE2, the Fed's POMOs provided
liquidity, and the correlation was not very
good. POMOs ended June 30, and the
two patterns got into step.
SP500
Current Period
155
150
145
140
135
1300
SP500
1982
1200
130
125
120
1100
115
110
1000
June
30
900
07/02/10
10/01/10
12/31/10
04/01/11
07/01/11
8/12/82, day of
Mexico's default
09/30/11
12/30/11
04/02/12
105
100
240
13000
8/3/11: 4.3% drop.
1 day up, then
additional 6.3%
drop to final low.
230
12500
220
12000
210
DJIA 2011-12
11500
200
190
11000
9/3/46: 6.1% drop.
1 day up, then
7.7% drop to
(almost) final low
180
10500
170
10000
160
DJIA 1946-47
150
9500
01/01/11
04/02/11
07/02/11
10/01/11
12/31/11
How It Turned Out
240
13000
8/3/11: 4.3% drop.
1 day up, then
additional 6.3%
drop to final low.
230
DJIA 2011-12
12500
220
12000
210
11500
200
190
11000
9/3/46: 6.1% drop.
1 day up, then
7.7% drop to
(almost) final low
180
10500
170
10000
160
DJIA 1946-47
Current market did not
dip into this final low
150
01/02/11
04/03/11
07/03/11
10/02/11
9500
01/01/12
04/01/12
4.6
4.3
4.5
4.7
4.4
4.6
4.3
4.5
4.2
4.4
Nikkei 225 Index
1973 to 2002
Nikkei 225 Index
1970 to 1995
QE2 pushes
Nasdaq to
multiyear high,
disrupting
correlation
4.1
4.3
4
4.2
3.9
4.1
3.8
4
3.7
3.9
3.6
3.8
3.5
Nasdaq Comp
Present Day
3.7
3.4
3.6
3.3
3.5
3.2
1st Persian
Gulf War
Greenspan
keeps
Fed Comp
Nasdaq
Funds
at Day
Present
1% too long
Both data sets plotted
on logarithmic scales
3.4
3.1
3.3
4.2
4.2
4.1
4.1
4
4
3.9
3.9
3.8
3.8
3.7
3.7
3.6
3.6
3.5
3.5
3.4
3.4
3.3
3.3
3.2
3.2
3.1
3.1
3
3
2.9
2.9
2.8
2.8
2.7
2.7
2.6
2.6
2.5
2.5
2.4
2.4
2.3
2.3
01/05/73 01/08/76 01/09/79 01/08/82 01/07/85 01/06/88 01/04/91 01/03/94 12/27/96 01/04/00
03/14/83 03/12/86 03/10/89 03/10/92 03/09/95 03/10/98 03/12/01 03/19/04 03/26/07 03/29/10
2.2
4.6
4.1
13-year correlation: +0.52
4.7
Nikkei 225 Index
Log Scale, 1988 to 2001
4.5
4.6
Strong positive
Fell 225
into Index
somewhat
correlation: +0.85.Nikkei
inverse
correlation:
1970 to 1995
-0.02.
4.5
4.4
Positive correlation
reestablished:
+0.71.
QE2 broke
correlation
again, for a
while
4.3
4.2
4.3
4.1
4.1
4
3.9
3.9
3.8
3.7
3.7
3.6
3.5
3.6
3.4
3.3
3.5
3.2
4
4.2
3.1
3.4
3
3.9
Nasdaq Comp
Present Day
3.8
4.1
3.7
2.9
3.3
2.8
2.7
3.2
Nasdaq Comp
3.6
4
2.6
Log Scale, Present Day
3.5
Equates to
Nov 10, 2011
3.4
3.9
3.3
4.2
4
11/18/88
11/19/90
11/16/92
11/16/94
11/14/96
11/16/98
11/15/00
12/29/98
12/27/00
01/03/03
01/04/05
01/05/07
01/06/09
01/05/11
3.1
2.5
2.4
3
2.3
2.2
Liquidity Waves
What is a Liquidity Wave
4
3
2
1
3
0
2.5
2
1.5
1
0.5
0
7
2.3
2.2
6
3-Month T-Bill Yield
2.1
5
80.86
2
4
1.9
45.08
1.8
3
1.7
2
1.6
1
1.5
0
1.4
-1
1.3
-2
1.2
1.1
VIX Index
-3
1
Log Scale
-4
-5
0.9
12/31/99
01/04/02
01/05/04
01/03/06
01/03/08
12/31/09
7
2.3
2.2
3-Month T-Bill Yield
6
2.1
Offset 2 Years Forward
5
2
4
1.9
1.8
3
45.08
1.7
2
80.86
1.6
1
1.5
0
1.4
-1
1.3
-2
1.2
VIX Index
Log Scale
1.1
1
12/31/99
01/04/02
01/05/04
01/03/06
01/03/08
12/31/09
-3
-4
12/29/11
12
500
Near Month Lumber Futures
Set Forward by 12 Months
11
10
450
400
9
350
8
7
300
6
250
5
200
4
150
3
100
2
6-Month LIBOR
1
50
0
0
01/02/97
01/07/99
01/04/01
01/06/03
01/04/05
01/04/07
01/02/09
12/31/10
475
500
Near Month Lumber Futures
Set Forward 1 Year
450
425
450
400
400
375
350
350
325
300
300
275
250
250
225
200
200
150
175
150
100
125
100
50
PHLX Housing Sector Index - HGX
75
50
0
01/02/03
01/02/04
01/03/05
01/03/06
01/04/07
01/04/08
01/05/09
01/05/10
01/04/11
01/04/12
225
200
Near Month Lumber Futures
Set Forward 54 Weeks
360
Lumber peak April
21, 2010. Blowoff
extended due to
squeze from Chile
earthquake.
320
280
175
240
150
200
125
160
120
100
80
PHLX Housing Sector Index - HGX
75
Aug. 18, 2011 Rasmussen Poll: "13% Say
Value of Their Home Will Go Up in Next Year"
50
01/02/09
07/06/09
01/04/10
07/06/10
01/03/11
07/05/11
01/03/12
07/03/12
40
0
2.2
2
100
1.8
1.6
1.4
1.2
101
0.8
0.6
0.4
0.2
1
0
-0.2
-0.4
-0.6
-0.8
-1
.10
-1.2
-1.4
-1.6
-1.8
-2
-2.2
-2.4
5.4
Crude Oil (Log Scale) Set Forward 10 Years
1981
With 60-Month MA
5.2
5
1990
4.8
4.6
2000
1948
1920
4.4
4.2
1998
10000
4
3.8
2009
1960-73
3.6
3.4
1933
3.2
1892 1898
3
1000
2.8
2.6
1982
1929
2.4
2.2
DJIA - Log Scale
2
100
1.8
1942
1903
1907
1.6
1.4
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020
2.2
5.4
Crude Oil (Log Scale) Set Forward 10 Years
100
2
With 60-Month MA
1.8
5.2
Nov. 2000
Top
100K
5
1990 Iraq
War
1.6
1.4
4.8
4.6
1979 fall of
Shah of Iran
1.2
10
1
1973 Arab
Oil Embargo
0.8
4.4
Jan. 2002
Bottom
1986 Saudis
abandon
quotas
4.2
10000
4
3.8
0.6
3.6
0.4
3.4
DJIA - Log Scale
0.2
1
3.2
1000
3
0
-0.2
2.8
-0.4
2.6
1970
1980
1990
2000
2010
2020
A Special One From
The COT Report
1600
50%
1500
SP500
40%
1400
1300
30%
1200
1100
20%
1000
900
10%
NET LONG
800
0%
700
NET SHORT
600
-10%
500
400
-20%
Eurodollar: Commercials' Position (COT Report)300
Net Long Position as % of Total OI, Set Forward 1 Year
200
-30%
01/05/98
01/03/00
01/02/02
01/02/04
01/03/06
01/04/08
01/05/10
01/04/12
15%
1400
SP500
10%
Equates
to around
Feb. 8
1300
5%
1200
NET LONG
0%
NET SHORT
1100
-5%
Equates
to around
June 4
-10%
1000
900
-15%
Eurodollar: Commercials' Position (COT Report)
Net Long Position as % of Total OI, Set Forward 52 Weeks
-20%
01/04/10
07/06/10
01/03/11
07/05/11
This dip did not
happen. Why?
01/03/12
07/03/12
01/02/13
800
Pictures of Thumb on Scale
1600
250
SP500
1400
200
1200
150
100
800
50
600
0
400
March-May 2008, when the Fed thought
things were fine, and decided to withdraw
reserves with coupon and bill sales. Oops!
200
-50
Fed's Permanent Open Market Operations (POMO)
Total Par Accepted, Last 20 Trading Days
0
-100
01/03/05
01/03/06
01/04/07
01/04/08
01/05/09
01/05/10
01/04/11
01/04/12
$Billions
1000
1400
1350
80
70
SP500
1300
60
1250
50
1200
1150
30
1100
20
1050
10
1000
0
950
900
850
Total Net Value of
POMOs in Past 4 TD
Scheduled
purchases
10/02/09 01/04/10 04/06/10 07/06/10 10/04/10 01/03/11 04/04/11 07/05/11 10/03/11 01/03/12
-10
-20
$Billions
40
1380
50
SP500
1320
40
1260
1200
Scheduled
purchases
or sales
June 30
end of QE2
20
1140
10
1080
0
1020
Oct 3 Operation
Twist begins
960
-10
Net Value of POMOs, Last 4 TD
Shifted Forward 2 Days
900
07/05/11
08/03/11
09/01/11
10/03/11
-20
11/01/11
12/01/11
01/03/12
02/02/12
$Billions
30
Confirming Signs
Market Breadth is the best sign of
good or bad liquidity.
5.5
1400
SP500
1300
5.0
1200
4.5
1100
OOPS!
1000
4.0
900
Cash Copper
3.5
800
700
3.0
600
2.5
500
01/04/10
04/06/10
07/06/10
10/04/10
01/03/11
04/04/11
07/05/11
10/03/11
01/03/12
13000
27
DJIA
12500
26
25
12000
24
11500
23
22
11000
21
10500
20
19
10000
18
9500
17
General Electric - GE
16
9000
15
8500
14
8000
13
07/06/10
10/04/10
01/03/11
04/04/11
07/05/11
10/03/11
01/03/12
1.24
900
Russell 2000
800
1.2
700
1.16
600
1.12
500
1.08
5% TREND
1.04
400
300
1
Russell 2000/1000 Rel. Strength
0.96
200
05/05/09
09/02/09
01/04/10
05/05/10
09/02/10
01/03/11
05/04/11
09/01/11
01/03/12
1600
1200
400
DAILY A-D DIFFERENCE
10% TREND
5% TREND
350
800
300
400
250
0
200
-400
150
-800
100
-1200
50
-1600
0
-2000
-50
-2400
-2800
11/01/94
McClellan Oscillator
-100
Difference between the 10% and 5% Trends
-150
12/01/94
01/03/95
02/01/95
03/03/95
04/03/95
05/03/95
280000
260000
240000
220000
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
-20000
-40000
-60000
-80000
4.2
DJIA - Log Scale
4
3.8
3.6
3.4
Cumulative Daily
A-D Line
3.2
3
01/09/86
01/06/89
01/06/92
01/03/95
12/30/97
12/29/00
01/02/04
01/05/07
01/07/10
2400
2200
9000
NYSE COMP
2000
1800
8000
1600
1400
1200
7000
6000
1000
800
5000
600
400
4000
200
0
3000
-200
-400
2000
-600
-800
-1000
1000
10% Trend of Daily A-D
07/02/08
12/31/08
07/02/09
12/31/09
07/02/10
12/31/10
0
07/01/11
12/30/11
1800
9000
NYSE COMP
1600
8000
1400
7000
1200
1000
6000
800
600
5000
400
4000
200
3000
0
-200
2000
-400
1000
-600
5% Trend of Daily A-D
-800
0
07/02/08
12/31/08
07/02/09
12/31/09
07/02/10
12/31/10
07/01/11
12/30/11
8800
900
NYSE COMP
8200
800
700
600
7600
500
400
7000
COMPLEX
COMPLEX
6400
300
200
100
0
5800
-100
-200
5200
-300
McCLELLAN OSCILLATOR
As Of 01/06/12: 90.21
4600
02/01/11
04/01/11
06/02/11
-400
COMPLEX
-500
08/02/11
09/30/11
11/30/11
02/01/12
10000
9000
9000
NYSE Comp
8500
8000
8000
7000
7500
6000
5000
7000
4000
6500
3000
6000
2000
5500
1000
0
NYSE A-D Summation Index
-1000
5000
4500
07/06/10 09/02/10 11/02/10 01/03/11 03/04/11 05/04/11 07/05/11 09/01/11 11/01/11 01/03/12
Summation Index moves up or down each
day by the value of the McClellan Oscillator
3500
4.16
DJIA - Log Scale
3000
4.08
2500
4
2000
3.92
1500
1000
3.84
500
3.76
0
3.68
-500
3.6
-1000
Ratio-Adjusted
-1500
Summation Index (RASI)
01/03/05
01/04/07
01/03/06
01/04/08
-1577
01/05/09
3.52
01/05/10
01/04/11
01/04/12
3500
4.16
DJIA - Log Scale
3000
4.08
Lehman
Bros.
2500
4
Bear
Stearns
2000
3.92
1500
+500
failures
1000
3.84
500
3.76
0
3.68
-500
3.6
-1000
Ratio-Adjusted
-1500
Summation Index (RASI)
01/03/05
01/04/07
01/03/06
01/04/08
-1577
01/05/09
3.52
01/05/10
01/04/11
01/04/12
450
445
440
435
430
425
THE
N
A
L
L
E
L
cC
T
E
K
AR
T
R
O
P
E
R
420
415
www.mcoscillator.com
Twice monthly newsletter: $195/year
Daily Edition: $600/year, or $160/qtr.
Get a 2-week free trial
Weekly Chart In Focus: FREE