This Week: Hope and Thanksgiving

This is an excerpt from my weekly market outlook post at ElliottWaveTrader.net:

For the week ahead, there is little in the mood pattern in the way of bearishness.  The mood pattern combines a "rose colored glasses" component in which news or data will be seen in the most positive light possible, and a "denial" component which will facilitate brushing off any bad news.  Perhaps people are wanting to keep a hopeful outlook as the holidays approach (U.S. Thanksgiving).

The main take away from the weekly forecast charts (at Elliottwavetrader.net) is that the market continues to be seriously overbought.  The extent of the divergence is beginning to be concerning.  When this "rubber band" snaps, it will not be pretty.

Qualitative Analysis Notes:  This week's identified social mood components: 1) Low Manic/Vulnerable (with inversion) => "Rose colored glasses;" seeing news in a positive light. 2) High Expansive/Controlled (with inversion) => denial, delusion.

  

Stock Market at Major Top

You have already decided that the stock market is making a major top now.  Actually, we collectively decided this when we voted about what mattered most to us.  I'm not talking about an election.  Our choices are reflected in what we most searched for on the internet... a few months ago.
Research that spans two decades has shown that daily internet search trends are reflected in the markets a few days later and weekly search trends a few weeks later.  What was important to us on a quarterly scale, well, that will show up a few quarters later.

The source data for the fourth quarter of 2017 comes from internet search trends in the first quarter.  There were many events in the news, including the Inauguration of President Trump.  However, what matters for this purpose is what we focused on the most, not what the news media thought was important.  What we cared about, as judged by our search trends includes Melania Trump, the New Year, the Oscars, the Grammy Awards, St. Patrick's Day, the Spring Equinox, the lunar or Chinese New Year, Alabama vs. Clemson, the discovery of an exoplanet, and the death of Bill Paxton.  While none of this is directly about the market, it reflects cycles of sentiment and social mood, and this is, or soon will be reflected in the markets.

The top trends for the period under review is first converted to themes.  For example, Alabama vs. Clemson can be seen as men, sports, and schools.  After all of our trends are converted to themes they are converted to four primary mood qualities which change over time.  This is shown in the chart below:



When the purple line (Expansive) is on top, and the pink line (Vulnerable) is on the bottom, and the two are moving away from each other, that is bullish.  It reflects the very essence of "bull market."  When these lines start coming back together, it reflects a decline within a bull market.  It is clear from this, that there is a top occurring or about to occur somewhere in Q4 of 2017.

From that point it begins to get complicated.  Every so often the signals "flip," and what was positive becomes negative and vice versa.  One of these should be occurring around Q1 of 2018.  Exactly when this happens will make all the difference in the world.

No matter which way the signal is oriented, Q1 is not likely to be a pleasant period for many.  If it is oriented one way, it points to a background of international issues, people feeling extremely vulnerable or risk averse, and the government trying to prop things up.  If it is oriented the other way, it points to the primary focus being either international issues or the president (or both), a background of victims or people feeling attacked, and things in general appearing to deteriorate.  However, most of the effects of this normal or inverted mood signal in the markets should primarily be seen in Q2.
The charts below illustrate an estimated market track (dashed blue line) using the MarketMood quarterly S&P forecast as a guide.

Base case (signal flip by end of Q4 2017):


Alt case (signal flip after Q1 of 2018):


Needless to say, for the sake of the economic stability and social well-being of our world, I definitely prefer the Base Case.  Even better, that scenario is the most probable one.

At MarketMood.net, we take internet search trends and convert them to daily and weekly forecasts in the stock market, crude oil, gold, and U.S. Dollar   These are presented and discussed in our live trading room.  You are welcome to come check it out!

Heralding Change: August 2017

A stock market rally that won’t stop for anything has been the status quo since February 2016.  There have been geopolitical uncertainties, election surprises, and political confusion, but the market has barely given a shrug to any of it.  The month of August should at least give it pause, and may herald a change of trend that brings the market down… at least for a few months.  Looking within patterns of social mood and translating that into likely market behavior, one can see that August is heralding a message: Something new this way cometh.

Research spanning two decades has shown that what we collectively focus on, as seen in the top internet search trends will show up in market movement and news events soon afterwards.  Daily search trends are shown to be related to market movement three days later, whereas weekly trends are related to market ups and downs about three weeks later, and monthly search trends appear to show up as market movement and often in news events about three months later.

The source data for August’s projections comes from May 2017 top trends.  Imagine taking the mood that accompanies Mother’s Day, the Manchester terrorist attack at an Ariana Grande concert, Chris Cornell’s suicide, and the death of the American TV personality, Christopher Boykin and somehow adding them together.   Other than Mother’s Day, they don’t sound like they would make a pleasant cocktail.  However, it’s not always that straightforward.

In order to combine these, they are first broken down into themes.  Mother’s Day becomes woman, family, honor, and calendar.  The fatal concert becomes woman, music, international, terrorist, explosion, death, and injury.  After breaking the other search terms down into themes, these are translated into an archetypal “language” of 8 words or categories which allows the terms to be added together.  The final results are entered into an algorithm called the MarketMood Indicator (MMI) which gives the expected market change in August from the May source data.

The general mood conveyed by these terms together is one of strong emotions, and often panic.  Yet, there is added complexity for this particular month.  Every so often the mood and its effects become inverted.  This inverted condition has been the case for many months.  It just so happens that in August, this inversion is expected to “flip.”  Before August even began, our analysis showed that at some point during the month, an overall social mood of denial in spite of facts (this is the flip expression of the panic pattern), should flip to something much more intense.  This would make it a month where people who have been in denial about a problem are suddenly faced with it loudly, brightly, and undeniably.  If this flip is more gradual throughout the month, both large short covering rallies and sharp sell offs are possible as buyers and sellers deal with a background of strong, shifting emotions.

To see how the August mood is distributed geographically in the U.S., see our latest United States MoodMap, Is August Panic Time for the United States?

The chart below is the output of the monthly stock market MMI.  The mood generated forecast line which has been in a steady climb since early 2016, can be seen at the right of the chart to be doing something different than it has been for so long.  While the stock market may take a slightly different shape from what is shown here, we can now observe a July-September "double top" in sentiment followed by an October “lower low.”  This is the first lower low to show up in the entirety of this monthly chart which goes back to March 2016.  The month of August 2017 should bring the initial jolts that allow such a long, powerful, and steady uptrend to pause and decline, at least for a few months.


Chart: Monthly MarketMood Indicator vs S&P 500.

The month of August is likely to be unusually full of emotional ups and downs. There have been many news stories of late that can be considered irrational, but this month may mark unexpected new extremes.   The mood pattern for the month of August taken as a whole, suggests a theme of strong emotions, irrational decisions, delusion, and even panic.  The stock market should reflect this background context, and make linear, “rational” or fundamentals based trading nearly impossible to succeed at—in other words, the market movements may make little sense to any reasonable person.  Most importantly, August is heralding a change from the status quo.  While it may not mark the final top of this long rally, as has already been seen after the first week and a half, it should be a jolt to the market, and wake up the sleeping VIX, at least for a moment.

However, just when everyone is assured that things are as bad as they can get, people may be surprised to learn that it’s not the end of the world after all.  Recall the market forecast chart above.  When August’s emotional roller coaster has finished its task, the market will rise again, and the VIX will fall.  This stubborn bull market will not roll over and die without a heck of a fight, and from the mood generated forecast chart, it doesn’t appear quite ready to stop fighting.

At MarketMood.net, daily search trends are converted to expectations of market movement in the S&P 500, gold, crude oil, and the U.S. dollar.  We issue daily and weekly reports, and discuss trade possibilities in our live trading room.

Is August Panic Time for the United States?

According to the pattern of top internet search trends in the United States, August 2017 may be “Panic Time.”  Over ten years of research shows that there is a direct and quantifiable relationship between social mood and the movement of stock and commodities markets in the near future.  Further, information from top search trends can be extracted to give us a “snapshot” of the types of news events and general societal mood to expect at a near future period (as well as market information).  The overall “mood” conveyed by news events and markets in the United States in the month of August could be quite intense and is likely to reflect irrational decisions, strong emotions, and possibly, at times, even panic.   The apparent stimulus for this emotional month may be events taking place outside of the U.S. or situations within the country.

To look at how different areas of the United States are doing relative to each other, we analyzed search trends from around the country geographically.  The map below gives us a picture of the anticipated distribution of mood patterns for the month of August.  The Northwestern U.S. is highlighted as more “emotional” than the rest of the country.  There’s an uncertain something shown off the South Florida coast (or related to Cuba?).  We’ll have to wait and see if this corresponds to anything.  The most significant mood configuration appears to be the area marked as “disruptive” in the Northeastern U.S.  This pattern can reflect social upheaval (unrest, protests, etc).  However, it also shows up in connection with an increase in terrorist activity.  With the center of this area being near NYC, it could also imply market disruption.

 

This map is not a map of future certainties.  It is a map that shows regions more prone to crises, or at higher risk for “newsworthy” events during the month of August than a "background normal."   Similar to the technology that converts internet trends to “future maps,” daily hot search trends are converted to expected changes in the stock market, crude oil, gold, and the U.S. dollar at MarketMood.net.  We publish daily and weekly forecasts, and discuss trade ideas in our live trading room.  A 15 day free trial is available to check us out.  Hope to see you there!

An Emotional Roller Coaster: April 1-7, 2017

What an interesting week in store for us!  A week where emotions rule-- irrelevant facts and reason are on the back burner;  fear, passion, hope and faith are in the driver’s set.   How do we know this?  Because you Googled it!

For over a decade of doing research connecting changes in social mood with events in the world and changes in the markets, it’s been found that the “mood” of what we collectively pay attention to on a daily basis shows up in some form a few days later.  Likewise, on a weekly basis, the mood reflected in what we are searching for most on the internet, shows up a few weeks later.  From this foundation, we can get a glimpse of the ambiance of the week ahead, the types of news stories, and what to expect in the markets, all from what we were looking at most intently a few weeks ago.
To start with, we can get a lot of information just from the top two trends from this week’s source data.  They are “Holi Festival” and “St. Patrick’s Day.”  The first is a Hindu festival that reflects the conquest of good over evil and the healing power of love.  The second is named for a Catholic saint, and is in effect a celebration of Ireland and Irish culture.  They both have religious roots and they both originate or are about places outside of the United States.  They both reflect a sense of community and celebration.  Interesting!

On the face of it, it would seem to be a fairly upbeat week.  A week of hope and celebration.  Yet it’s not that simple.  Perhaps to keep us on our toes, every so often the source mood and the effect we see a few weeks later “flips.”  What may have been fear becomes hope; what may have been optimism shows up as anxiety.  It just so happens that this coming week is a flip week.  Sometime during the week ahead, this “flip” should come about.  That is when the emotional roller coaster should really kick in!

To further analyze our mood data for the week, we break the search trends down into themes and then translate that into what we call the four primary mood qualities: Vulnerable, Expansive, Manic, and Controlled.  For example, the themes I came up with for these two top search trends are religion, international, activity, love, green, and celebration.  The picture below illustrates how that looks as a “MoodCompass” of the four primary mood qualities:



You can see that Expansive and Controlled on the left or “West” side of this picture are much bigger than Vulnerable and Manic on the right or “East” side.  This is made even clearer by the inner circle.  The blue part shows the total of the two West mood qualities which are associated with emotions or the non-rational.  The yellow part shows the total of the two East mood qualities which are associated with facts, data and reason.  When comparing the blue part of the inner circle with the yellow part, it’s easy to see that this week is ruled by emotions (e.g. passion, fear, hope and belief), and that reason (e.g. facts, data, objectivity) will not be the primary driver of decisions or behavior.

So, it’s likely to be an intense week, and it’s likely to be full of emotional ups as well as downs.  We can look forward to irrationality starring in the news, for events and actions to make less “sense” than usual, and for markets to participate with ambiguity and possibly large swings in either direction as traders try to make sense of an especially irrational moment.

At MarketMood.net, we explore this information further by translating the four mood qualities into expected point changes in the stock market, crude oil, gold, and the U.S. Dollar on a daily basis, and discuss this in our live traders’ room.  You’re welcome to come check it out!

Tomorrow's Stock Market from Today's Search Trends (video)

How do you take today's internet search trends and translate that into stock market changes 3 days ahead of time?  Here's Dr. Cari Bourette's explanation given at the NY Traders Expo 2017 (following an introduction of sentiment based trading by Elliott Wave Trader's Avi Gilbert).

 

Tea Leaves

This post was written by a good friend and philosopher, Daniel Reader when I was still at the MarketMood.net site.

Those of us that frequent these pages understand that the news doesn’t drive market prices – or anything else, for that matter.  The news is driven by…something else.  The same may be said for market fluctuations.  The market is not the driver of anything – instead, market movement is the result of something else.  What that Something Else actually is turns out to be the subject of much philosophical debate.  Beyond identifying it, finding that thing, or force, is just as esoterically challenging, and has most frankly been the purview of religion over the centuries.  But what if that thing, that Force, actually left tracks in the sand, or resonated with some audible, measurable pulse?  And even more magically, what if those tracks pointed to a future condition merely days away?  Now, that would be useful information!  We have but to find the signal, and figure out how to interpret it, and a window into next week opens before us.  This is precisely what Market Mood purports to do.

While making no claim at all about the Force behind the phenomenon, Market Mood has identified a signal, or indicator, that seems to be just such a pulse.  Dr. Cari Bourette tracks the interests of the United States by watching the things that Americans are watching.  She charts the Google search trends of hundreds of millions of people on a daily basis, getting numbers for just what is juicing people today -- and a fascinating pattern emerges.  The arcane charts of squiggly lines she delivers seem opaque at best, but what emerges is a complex dance of emotional drivers – moods – that seem to match real-world events days, and even weeks or months in advance, with extraordinary accuracy.  Think about that.  What Dr. Cari is doing is taking the pulse of the world, and using that to tell us what will happen in the future.  This is nothing short of miraculous.

The philosophical implications of this are simply staggering, and will be explored at greater length in future articles.  But what is important for us to understand now, is that we have available through MarketMood.net a reliable market indicator that does not use market performance as its basis.  In this sense, it is unique, and revolutionary.  Dr. Cari provides us with actionable market information that is in no way derived from market conditions, or performance, of any kind.  No other system or method, black box or otherwise can make this claim.  Among all of the implications of this claim is the certainty that no past assumptions, rules, patterns, or any other investment governance plays any role whatsoever in the delivery or interpretation of the market guidance.  Indeed, Dr. Cari’s goal is not to provide investment advice at all – simply to tell you which way the market is likely to move, and let you determine your own trading strategy accordingly.  This is refreshingly straightforward, and should pique the interest of novices and seasoned investors alike.  Remarkable!

A New Geopolitical Chapter: Feb 11-17, 2017

This week, a new chapter, or new paradigm begins.  Why do I say that?  In the research I’ve done following the relationships between changes in social mood, the markets, and the news, I’ve found that the patterns found in the things we pay attention (i.e. top internet search trends) to on a daily basis show up in the markets and news stories about three days later.  When one looks at the patterns in the top weekly search trends they show up in the markets and types of news stories about three weeks later.

The top search trends 3 weeks ago included Melania Trump and Chinese New Year.  It was week number one of the Trump administration.  It was also the beginning of the Year of the Fire Rooster.  In the analysis of the pattern for this week two primary things show up.  First, it’s a pattern of a “new paradigm.”  We’re about to turn the page into our next collective “chapter.” This should show up as a change in the news cycle.  There could be a new focus or new tone in what’s being reported.   In the markets this should appear as new market behavior and/or a new direction.   Second, there is a rise in the “vulnerability factor.”  In the news, people may seem a bit more reserved or anxious.   In the markets, this should appear as increased risk aversion.  Finally, the mood pattern over the next few weeks shows that there’s a good chance that this new chapter will include increased attention on geopolitics and foreign affairs.



Above is a picture of this week’s internet search trends converted to four primary mood qualities.  At MarketMood.net this is further converted to expected changes in stock market points and commodity prices, and discussed in our member trading room.

It’s a new day, a new week, and a new chapter.  May yours be a good one!

An Emotional Week! Feb 4-10, 2017

The world has been struggling to adjust to the unique style of the new Chief Executive of the United States.  With all the turmoil observed and experienced in the U.S. over the last couple of weeks, it’s difficult to imagine that the coming week could be set apart as “An Emotional Week.”  Yet, apparently that is just what we are about to get!

For whatever reason, those things that we collectively focus on (as seen in the top internet search trends) show up in kind a short time later.  This can be seen in the types of stories that occur in the news, in the stock market, and in the general ambience of our lives.  When we look at those things that held our focus on a weekly basis, we get a good clue about the general mood and market behavior that are likely to show up three weeks later.

While our dataset has over 20 top internet search trends each week, just looking at the top few gives us a good bit of information.  The top three search trends that relate to the coming week are Inauguration, Martin Luther King Jr. Day, and the Dallas Cowboys.  To be able to combine these into a meaningful picture of our week, we first break them down into the themes these terms contain.  For this week:  President, ritual, new era, man, nostalgia, prejudice, tolerance, killed, sports, loser.  While an interesting combination of themes, it’s not yet clear why that leads to an “emotional week.”
The next step is to translate this into four primary mood qualities.  Graphically, this is what we end up with:

The side of this graph on the left, the “West” side , is related to emotions and the non-rational.  With “Expansive” slightly greater than “Controlled,” this is associated with passion, panic, and irrational decision making.  In the markets, a volatile week is likely.  It will be interesting to see how this week will be able to stand out from the last few in regards to “passion, panic, and irrational decision making.”   Also, with this in mind, I will do all that I can to be aware of that in myself, and take some deep breaths and a moment of thought before making any important decisions!

In our members’ trading room at MarketMood.net, besides a daily analysis of the social mood, we translate internet search trends into market forecasts for the coming days and weeks for the stock market, crude oil, gold, and the U.S. Dollar.  In this way, emotional weeks such as this one just ahead, does not have to be a liability!

Freaking Out ‘N Moving On: Jan 21-27 2017

There’s a new U.S. President in town.  Some people are excited, and some are really quite upset.  A great tension has built up since Election Day surrounding the beginning of Donald Trump’s term.  This build up of foreboding and impending doom even showed up in the weekly top internet search trends that we track and analyze, and was discussed in last week’s post.  This tension is about to be released.

The chart below shows the ups and downs of the four primary mood qualities that all search trends are converted to in our analysis (for whatever reason, what we collectively focus on, i.e. the search trends, shows up in the news, the markets, and general ambience about three weeks later).  The gray line (Controlled) goes steadily up from early November to Inauguration Day and then drops off sharply over the next two weeks.  That sharp drop and its reverberations should be visible this week in the news cycle, in the stock and commodities markets, and the overall mood.



Another part of the analysis is identifying the patterns that show up.  Two have been identified for this week.  First there is a pattern that is associated with high emotions, passion, and panic which began last week and completes this week.  The second is a pattern which is directional, forward moving, and generally optimistic.  This begins sometime this coming week and continues into the following week.

In our members’ trading room at MarketMood.net we also translate these patterns into market forecasts for the coming days and weeks.  Undoubtedly, the coming week should be topsy turvy and highly volatile as one pattern completes and the other begins.  Hang on to your hats!

End of the World as we know it: Jan 14-20, 2017

The Obama administration is coming to an end.  While some may be celebrating, for others it might as well be the end of the world.  In tracking the weekly changes in social mood, I've noticed a slow and steady increase in a somber and foreboding mood quality since the U.S. presidential election.  The good news is that it reaches a peak in the coming week, and then drops off sharply.  The bad news is that it reaches a peak in the coming week.

For whatever reason, the things we focus on as a society show up in the stock market, in the news, and in the general ambience of our lives shortly after.  We know this because the hottest daily internet search trends contain information about what the markets are going to do, and the types of news stories that could come up about three days later.  When we look at the mood qualities found in the search trends on a weekly basis, these qualities show up in the markets, the news, and in general, about three weeks later.

I find it fascinating that as we come upon this ending of a way of being in America, and how America conducts itself, that the data I'm looking at for this week of endings is the last week of 2016-- another ending.  There was a lot of loss in that week.  The biggest search trends focused on two amazing women, Carrie Fisher and Debbie Reynolds, a famous mother and daughter who both died only a few days apart.  Other public figures lost that week, which were also among the top trends, were George Michael and Ricky Harris.

It makes sense that if all that went on that last week of 2016, which in kind is to somehow become a part of this last week of the Obama presidency, that this would be a time for grief and trepidation.  Yet, as uncertain as it is, the "New Year" comes and we adjust to what is.  This chart (below) shows the four mood qualities that I track.  If you look at that gray line (Controlled) that steadily and unusually rises since early November, you will see that it sharply drops after this week.  That represents this extremely serious and foreboding mood ever increasing from election day through Inauguration day.  Another interesting thing about this coming week is the overlay of the purple line (Expansive) and the gray line (Controlled).  This is associated with strong emotions, irrational behavior, and panic responses.



With all the uncertainties in getting a new president, especially this one, it's not surprising to see this about next week.  It's fascinating that this information came from events we Googled about three weeks ago.  It may also not be surprising that markets could be quite sensitive and make large swings in either direction (panic responses) with little stimulus in this last week of a somewhat known quantity.  This is a week when "fear itself" may be the greatest adversary to stability.  We will be closely watching the daily signals in our member trading room at MarketMood.net.

When I find myself experiencing this dread of the unknowable and unpredictable dawn of Orange America, I remind myself that I don't need to get wrapped up in it.  What is happening is; and even if it's the end of an era, or the end of a world, I can remind myself of the detached wisdom of R.E.M.: "It's the end of the world as we know it, and I feel fine."