Composite Cycles Model on New Home Sales indicates possible end for U.S. recession as early as summer 2024

New Home Sales - also known as "New Residental Sales" - is an economic indicator that measures sales of newly built homes. New home sales data is one of the best leading indicators of the housing market. When new home sales data shows a significant decline, telling us not only that new homes being built are not selling, but also that people who started building a home are no longer buying the completed homes, it is a clear indication of a slowdown in the housing market and a possible recession.

That is the usual reading of this data set. However, cycle analysis allows us to delve deeper on this data set. Since the selling and buying of houses is also a kind of sentiment measurement of market participants, it is a good candidate for cyclical movements.

A a metric based on a calculation of Net Liquidity suggests that the  SPX is now over 300 Points "Over Valued" which represents the largest deviation seen at any time over the last two years. So, how to we come to this assessment and how useful has this been in recent times? FED followers have traditionally tracked the Feds balance sheet and the Fed Fund Rate, the theory being that these are the central driving forces behind the markets. These matrices have certainly been of relevance especially since the advent of QE going back to 2009. Since 2020 the system has changed. The Fed went into overdrive and printed a whopping 4.5 Trillion Dollars. This was an un precedented avalanche of money which had the effect of roughly doubling the size their balance sheet. This was widely broadcast and known but what was less obvious was the Treasury deciding to provision itself with a whopping 1.8 Trillion Dollars in Reserves, 4.5 times the previous largest amount ever held at the Treasury General Account (TGA). Over the course of 2020 & 2021 the liquidity flows from the FED and Treasury combined fuelled a stupendous market rally. This came to an abrupt halt as we entered 2022. The Treasury curtailed its flow of shorter dated paper that typically facilities the Primary Dealers proving liquidity to both the Stock & Bond Markets while the FED simultaneously raised the award rate on the Reverse Repo Deposits thus resulting in over 2 Trillion of liquidity getting sucked into Reverse repo Accounts. This was six times more than we have ever seen in the past. 

In the past we have been able to simply use the size of the FEDs balance sheet as a rough but usable metric for Net Liquidity. Now, we need to consider the Reverse Repro Account combined with the Treasury General Account as part of the equation, thus:

Net Liquidity = Fed Balance Sheet -(TGA + RR). 

The chart above shows the calculated Net Liquidity VS The S&P 500 offset backwards by two weeks over the last two years. The correlation is 95%. This demonstrates that a change in Net Liquidity correlates to a range in asset prices two weeks forward with a historical accuracy of 95% based on the current regime. 

The following chart shows the 10 year US treasury minus the 1 year treasury spread curve in blue. The current yield curve is negative which results in an inverted yield curve. Attention is keenly focused on the yield curve slope as sustained inversions in past decades have been followed by economic downturns over the ensuing 12 to 18 months.

We have applied the cyclic model and have gathered 5 dominant cycles in the treasury spread. The detected five cycles form a composite model and are overlayed in fuchasia in the chart below. The cyclic model is able to predict major turns in the yield curve. Proposing a cyclic turn might be around the corner. As indicated at point #5 on the chart.

Millennial, Lamborghini Driving Bit Coin Millionaires, Social Media Twitter Heads, Even the Multi Billionaire Mr Musk are all on board the Crypto Currency wave of Euphoria. Back in late 2018 into early early 2019 with Bitcoin dropping from its then all time highs into the low 3000’s did anyone know that it was the time to be getting on board this seemingly unstoppable rocket? If they did, then had they any idea at that time of knowing just what dizzy heights these “alternative” currencies might go? 

We published a series of articles at that time in which we suggested that indeed it was an opportune moment to consider getting involved and we also provided ideas on what levels we expected to see over the coming months and years. 

This is what we had to say back in October of 2018. 

US Stock Indices have seen unprecedented gains since the lows back in March 2020. The moves down into those lows from the highs barely one month earlier in February 2020 were the fastest on record yet just over one year later and against a back drop of a global pandemic the US Markets are seeing consistently higher then higher new all time highs. Put Call Ratio’s, Price Earnings Ratios and a host of other metrics are regularly touted across social media platforms as being at or beyond levels where we “should” see markets reverse yet prices stubbornly refuse to “do the obvious” by moving lower and appear immune to the fears and trepidations of the wounded and howling Bears while the Bulls point to the improving unemployment numbers, retail sales figures and economies re opening coupled with the extraordinary actions of the Federal Reserve.

This article is taking a ‘Bigger Picture” perspective on where we all stand and the direction in which we are heading.  The decade of the 2020’s is one where the institutional and social cycles converge, ending in the same 10 year period. It is the period of the “Storm Before The Calm” , a period of transition from one social economic cycle to the next, a period of change. This of course has a direct correlation on the emotional cycles that are also being seen.

Since early July we have seen every pullback in the US Markets hold above support and then push higher resulting in the upward chop to new highs week after week. The liquidity landscape has been hugely supportive during this period leaving Primary Dealers flush and markets buoyed. 

Taking stock and looking forward over the coming weeks and months things may not be so straight forward (or “upward”) from here. 

US Markets have been on a tear to the upside since the dramatic drop into the lows seen earlier this year. The technology heavy Nasdaq has exceeded its all time high from February 2020, The S&P 500 is now approaching that same high while the Dow Jones Industrial Average & Russell 2000 Small Cap Index are lagging slightly behind. With the world seemingly in turmoil & in the grip of the Covid 19 Pandemic, Central Bankers printing money and throwing it around like confetti, unemployment rising and the leaders of Nations providing little more than a tragic puppet show this all seems counter intuitive. 

We have Non Farm Payrolls being announced before the opening bell in the US tomorrow (Friday 7th August) which often marks the commencement of a directional move in the markets so let’s take a look at where we are and what to look for over the coming weeks in the benchmark US Index Futures. 

With the Main US Indices have been effectively range bound since early to mid June we are looking for the next significant directional move. Seasonally August has historically seen pullbacks in the S&P500 (See Chart). Will this unusually volatile year prove to be different? 

Summary

Crude Oil setting up a 45% - 65% upside non-leveraged trade.

When two Elliott Wave counts both project in the same direction for a significant amount of price movement, it enhances the risk to reward skew dramatically in our favor.

It doesn't take too many of these types of investment opportunities each year to make a profound difference on achieving super performance.

Bit Coin Charts & Morning Update & Video

Bit coin has now completed a full five wave move down off the Sub Minuette Degree b Wave high seen on 4th September. The move down should be the Micro Degree Wave 1 of the Sub Minuette Degree wave C and the subsequent upside reversal is the Micro Degree Wave 2.

Bitcoin has turned up strongly off the low seen last week to stick save ihe Sub Micro Degree Wave (c) of the Micro Degree Wave 2 and has since hit the target zone shown in the 60 & 240 Minute Chart and reversed lower thus likely completing this Micro Degree Wave 2.  Looking for Bit Coin to conform this now by taking out 6170 then 6134 next...

ES Charts & Morning Update

The recent low in the ES at 2605 came just shy of hitting the 1.00 extension at ES 2600 for the entire move down off the recent ATH. Since that low we have now seen ES make a strong move to the upside. IF we have now seen the swing low for this move down in the ES then we now need to see it clear the resistance zone (2770 - 2862) shown in the Daily Chart .Below there 2824 is the key pivot now in the ES and while we are below that level we can still see further declines into the support zone shown in the 60 Minute chart.

NG has continued to push gradually higher after the large gap up the other week. We have now reached the 123.6% for the a to C wave relationship in the Wave V of what looks to be a diagonal structure. We will need to see a full 5 wave move down with a subsequent retrace and follow through lower before a local high can be considered in and then assess the next move lower for likely levels. It is now more likely that this entire move up is the Minor Degree Wave A of the larger Degree Wave (3) (See daily Chart) and that the next move down will therefore be corrective.

Bit Coin Charts & Morning Update:

Bit coin has now completed a full five wave move down off the Sub Minuette Degree b Wave high seen on 4th September. The move down should be the Micro Degree Wave 1 of the Sub Minuette Degree wave C and the subsequent upside reversal is the Micro Degree Wave 2

EURUSD Charts & Morning Update

With the continued move higher in the EURUSD it is now un clear if we are still in a Minuette Degree wave (IV) with the Minuette Degree wave (5) sill ahead to complete all of the Minute Degree Wave 1 down off the February 2018 high OR we are now in the Minute Degree Wave II back up already with the Minute Degree wave 1 having completed at the August 15th low. 

ES Charts & Morning Update

On Monday the ES came up to the 1.00 extension in an A B C structure off last weeks low and then reversed down to make an new local low. That low came just shy of hitting the 1.00 extension at ES 2600 for the entire move down off the recent ATH. Since that low we have now seen ES make a strong move to the upside. IF we have now seen the swing low for this move down in the ES the we now need to see it clear the resistance zones shown in the 60 Minute Charts.

Summary

Gold (GC) Charts & morning Update

GC pushed strongly higher last week thus confirming that the Minuette Degree Wave (IV) is still in progress and that we are seeing the Sub Minuette Degree Wave c up towards 1238-1242 area.  Once this move up completes we should then see GC turn back down in the Minuette Degree Wave (V) of Minor Degree Wave 2 down to the 1149 target level (See Daily Chart). 

ES Charts & Morning Update:

The recent strong move to the downside has removed any possibility of an immediate impulse count higher in the ES and considering the continued downside price action has now made the smaller ending diagonal count where this move lower would count as the C Wave of the IV very unlikely. IF we still have higher levels to come in the ES before we see the start of a much larger correction then the recent low counts as the bottom of an A Wave down of a larger Wave II within an even larger Ending Diagonal Pattern in the ES. 

In looking at these extensions up in NG, I think it's trying for a price target of 3.453.  Supportive of this is - 1. It's the 3.618 extension for the (c) wave, a common fib for NG, as shown on the 60 minute chart; 2.  It's slightly over the .786 retrace, which I've noticed that NG does a lot - spikes just over the .786; 3.  It lines up as a spike just over where the (Y) wave is 1.382 x the (W) wave; and 4.  The overall 1.382 for the larger (Y) wave lines up spot on the overall .886 retrace level.

Gold (GC) Charts & morning Update

If GC can remain below the recent high at 1215.8 and continue lower then we are in the final Minuette Degree Wave (V) of Minor Degree Wave 2 down to the 1149 target level (See Daily Chart). Above 1221.3 then  we are in the ALT Minuette Degree Wave (IV). I have shown the sub wave structure based on the idea that we are going to see higher levels in GC in the ALT 4 count before resuming lower. 

ES Charts & Morning Update

ES futures are trading flat so far this morning. Yesterday we saw the ES drop sharply in the Sub Micro Degree Wave (c) of Micro Degree Wave 2. ES reached just shy of the 76.4% retrace of Micro Degree Wave 1 and then bounced strongly into the close gaining 26 points up off the days low. 

Bit Coin Charts & Morning Update:

Bit coin has now completed a full five wave move down off the Sub Minuette Degree b Wave high seen on 4th September. The move down should be the Micro Degree Wave 1 of the Sub Minuette Degree wave C and the subsequent upside reversal is the Micro Degree Wave 2.

Summary

NG Charts & Morning Update

NG has now pushed up and taken out the high seen back in June 2018 thus invalidating the immediate downside count. Looking up a little further now to complete the full 5 wave structure off the low seen on 10th September to complete a higher Minute Degree Wave B before we then start the Minute Degree C. 

DJIA (YM) Charts & Update

The YM came up and hit the 123.6% extension at Fridays high for the completion of the Micro Degree Wave 3 and has since pulled back slightly in the Micro Degree Wave 4. Looking for the YM to remain above 25563 and then push higher towards the 161.8% extension next at 27171 in the Micro Degree Wave 5 which will then also complete all of the Sub Minuette Degree Wave iii.

The ES looks about to break out in the continuation of the Minuette Degree Wave (iii) of the Minute Degree Wave III within the Minor Degree 5th Wave up off the April Lows (See daily Chart). Looking at the 240 & 60 Minute Charts i am looking for the ES to take out yesterdays high at 2919.25 and grind up towards the 2983 area next in the Micro Degree Wave 3.

Yesterday we did indeed see the ES breakout in the Micro Degree Wave 3. 

Gold (GC) Charts & Update:

GC now has a leading diagonal down for the i of 5, a deep ii back followed by a micro 1, 2 down. Looking for GC to remain below 1218 and continue lower from here. See this morning's charts and video below. 

CL Charts & Morning Update:

CL has now moved up strongly from the recent low in what looks to be an unfolding impulse as shown in the 15 & 60 Minute Charts. Looking for the final 5th up to complete all of the Wave (1) of the larger degree C of 5 (Daily Chart).

Summary

• Timing and target levels for the S&P 500 Stock Index.
• Cash is an investment choice as well.
• Two alternatives for great returns during an overall correction in the S&P 500 Stock Index.

EURUSD Charts & Morning Update:

Yesterday we saw this pair turn back down from just below the invalidation level marked in the 240 & 60 Minute Charts. The recent high should ideally be the top of the Wave IV in an unfolding ending diagonal to complete the Minuette Degree Wave (v) which will then  complete all of the Minute Degree Wave 1 down off the February high. Should we see the EUR:USD take out the invalidation level at 1.1627 then the Minute Degree Wave 1 is already complete at the low seen on 15th August and this move up is part of the Minuette Degree A Wave of the Minute Degree wave 2. 

Whether you’re an active investor who manages their investment capital for exceptional performance, or a trader who seeks to generate weekly and monthly profits, natural gas is a phenomenal tool to help you to achieve your goals. 

There are a number of ways to trade in Natural Gas – ETF’s (i.e. UNG), leveraged ETF’s (i.e. DGAZ and UGAZ), and Natural Gas futures.  While we trade NG futures on a daily basis in our live trading room, our active investor subscribers are up an astonishing 38.74% thus far in 2018 in NG, resulting from only 4 individual trades lasting an average of 2 weeks each.

The well-known trading adage “Sell in May and Go Away” warns investors to sell equities in May to avoid seasonal declines, but not in 2018.  This year, according to our Elliott Wave and Hurst Cycles analysis, investors and traders alike should prepare a shopping list of individual stocks to go long in the coming weeks – we have!

In my last article – (Wish List of Stocks for S&P500 Move to 3,200), I provided a small list of the many companies we have identified for our subscribers that will significantly outperform the S&P500 in its anticipated move up to the 3,200 region later this year. 

While in an era of Bitcoin and FANG stocks, Walt Disney Company (SYM:DIS) may not seem like the most glamorous stock to own, insomuch making huge profits are glamorous, Disney way more than qualifies, and given the right entry into the stock, affords investors a rare opportunity indeed.

In my last article – (S&P500 – Don’t Believe the Doom and Gloom – YET!), I summarized in detail my expectations for this miner degree 4^th wave corrective move in the S&P 500 Index to the 2470 – 2430 area, with an outside chance it could reach as low as the 2333 area.  I suggested the next move higher into the November, 2018 time frame should provide for an approximate 30% increase in the S&P500, resulting in a move to the region of 3,200 – 3,300.