World in Crisis, Part II

In the previous post, we summed up the latest on this complex global crisis pattern that began in late February.  The Ukraine crisis kicked it off, then the Malaysian jet disappearance made headlines for weeks.  The Korean ferry sunk, killing hundreds.  In the U.S. there were late winter storms, killer tornadoes, and a barrage of news stories of people "losing it" and shooting people.

It was discussed that with all of the angst and distress, globally, and within the U.S. that these events appeared to be of the type that signal the main event yet to come-- precursor events.  We expected the "disaster signal" (see 1st chart below) to stay above the line drawn near the bottom right of the chart and to at some point turn up.  Through all these weeks, this signal line has been churning away near that baseline, neither clearly going up toward a new set up, nor falling down in release.  It has been a difficult time of transition for many, yet the big impact for the U.S. has not yet appeared.

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While there is not yet a clear indication that the "grand finale" is imminent, there is a clue from social mood and the stock market that it is becoming quite close, likely within a few weeks away.  The chart below shows expected stock market movement derived from social mood (Google Hot Trends) versus actual stock market movement.  The two lines on this chart are usually pretty much in sink.  What this is telling us is two things: 1) The market trend is up, and in line to continue to new highs; and 2) The market is not able to go much higher than it currently is without first making a sharp drop down to at least the 1700-1750 area (the social mood signal dropped there in March, but the market didn't follow along-- it can't get away with that indefinitely).  In other words, an 8 to 10 percent correction is required for the market to continue much higher than where it is right now (S&P 1884).  If by chance, markets continue to eek out another 2 percent (1922-ish), the drop will need to be that much greater (10 to 12 percent).

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According to Robert Prechter's research in Socionomics, the big events tend to come near market bottoms.  Tomorrow's (Tuesday's) daily mood signal is showing a dip.  Is this the beginning of the drop toward the 1700s?  Will tomorrow be the next step closer to this grand finale still a few weeks away (before the market returns to an uptrend)?  If not, we will keep watching for the next indicator.

 

Day of Reckoning for the U.S. and the Global Economy

It's difficult to tell whether the stock market will go up a little bit higher before topping or not, but what is clear is that social mood is not likely to climb past where it is right now.  And because the stock market closely follows social mood, and because the economy is roughly a few months behind both the stock market and social mood, this is a topic that should be of interest to almost everyone.

The United States, and in fact, the world, are at a critical juncture right now.  The U.S. has enjoyed the benefit of exporting many of the costs of quantitative easing, due to its being the world's primary reserve currency.  As tapering is expected to begin, it just so happens that social mood, the collective sense of the people and their evaluation of the moment, is also at a critical juncture. Technically, it appears to be nearing a brick wall, past which it is not likely to push through in the near future.  In fact, according to measurements from Google Hot Trends, the social mood equivalent in stock market points has been in a downtrend for about a year.  It almost doesn't matter what the Fed does now.

The chart below shows the last six months of social mood (converted to stock market points) vs. the stock market.  People familiar with technical analysis of stock market charts will be able to see that the dashed red line, called "signal" in this chart, is brushing up against some very solid looking resistance.  There are two things that can happen here: 1) People become all together exuberant about their future through some collective sense of optimism that appears in the next few weeks, allowing the social mood to plow through this thick wall of resistance or 2) Social mood goes no higher and the market starts falling.  The economy would start feeling the effects a few months after that.

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Looking at a chart (below) of mood gleaned from top U.S. news stories, and converted to stock market points, a similar crossroads emerges.  Over the past month or so, the news (bad as it may seem) is actually reflecting a world of much more robust growth and expansion than is being reflected by the stock market.  The stock market is at a resistance point which it may or may not get through.  Another very strong resistance point is less than 2% above that.  Two things can happen in the next few weeks (and months): 1) The stock market and economy take off in a new burst of growth and prosperity that has not been seen in many, many decades or 2) There is some very, very, very bad news or a series of very bad news events which take the news signal down to a level more closely corresponding with where social mood and the markets actually are.

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Watching the production of resources peaking around the world, seeing the effects of climate change wreak havoc with weather systems, lifestyles, and food production, watching population grow and waste become ever more excessive, it seems the odds would be on the side of a socioeconomic top.  It is likely that a clear path will have begun toward one of the two directions by the end of the year.  By next month, we could have a pretty good idea.