On High Alert
Momentum Peak Forecaster
Posted Mar 14, 2011
Our Momentum Peak Forecaster is a proprietary indicator that goes straight up as a market becomes highly speculative. The more intense the buying mania, the higher the Forecaster goes.
The highest reached was 1.37 with the culmination of the frenzy in gold and silver in 1980. This was 2.5 months before the conclusion in January 1980. The lowest trigger was 1.21 reached in May 2006, when we took this as a signal on the housing boom. The Case-Shiller index topped in June-July and our review on the pending decline in house prices included previous post-bubble collapses in real estate and was published that August.
We stumbled upon this unique indicator in 1998 – within the mania in narrowing credit spreads as the European Community was coming together. It led the reversal to widening by 3 months which took out Long Term Capital Management in that August to October calamity.
Back-dated to 1970, this has registered 1.21, or higher, seven times and only the 2004 example did not result in a dramatic event.
The Forecaster becomes effective when it stops going up and this typically leads the speculative peak by 2.5 months to 3 months.
This Time Around
The forecaster reached 1.28 at the end of December which compares to 1.23 registered before commodities peaked in 1974. This suggests that this peak may be more exciting than that example. On the other alternative, it may not be as intense as the 1980 example that reached 1.37.
Of course, this can't be determined until speculators (both private and within central banks) become exhausted and another liquidity problem is discovered.
Since the end of the year the indicator has been going down and once it turned down the mania would likely complete in the third month out. This could be within a six-week period centered in March.
In our All-One-Market thesis of inflating asset prices against dollar depreciation, all sectors may not peak at the same time. The action could narrow its participation to just a few leaders. Our ChartWorks technical research concluded some weeks ago that crude oil as well as silver and gold would be the focus.
The following tables all of the readings above 1.21 on data back to 1970, the complete chart is on the last page:
(Entire article linked below)