The American Eclipse, Hurricane Harvey, and Hurricane Irma are marking the top of a major climate cycle. Extreme climatic events always mark a climatic, societal, and economic shift and predict a major depression and market crash.
2017 has been a banner year for aurora borealis light shows towards the North Pole.
“As it is about to turn cold, that is, when long climatic cycles are shifting from the warm to cold phase, the sunspot cycle shortens, sometimes to only eight years in length, and averages shorter than normal throughout the cold period. At the same time, the maxima contain more and larger spots and the spots continue to be more numerous throughout the cold phase. Just before it turns cold, solar storms large enough to identify with the naked eye are likely. Such an occurrence is excellent evidence that the warm phase of a long climatic cycle is about to end.” —Climate, the Key to Understanding Business Cycles, Dr. Raymond Wheeler
Nobody is yet talking about the effect these hurricanes will have on food production, but it will be severe. Expect crop failures in both the states of Texas and Florida. On top of this, the turn to colder will end the wet phase and the climate will turn dry (a wet phase almost always precedes a dry phase). The dry phase will likely last for decades. We’re starting to see the dryness in all the forest fires in the both the US and Canada. We’re still in the extreme weather phase (think of the usual storms that accompany the onset of fall, but on a much larger scale).
Civil war always accompanies a colder/dryer climate.
The Cycle Top of the Roman Empire
Sunspots and Aurora were reported in A.D. 51. From A.D. 85 to 120, Aurora were fairly frequent. These factors along with other evidence, confirm that shortly after 85 A.D., it turned cold for several decades. Extreme weather always marks the tops of these major cycles.
Written sources from about 75 BC to c. 175 AD also emphasize moisture, mainly in the form of the Tiber floods in Rome. Large Tiber floods occurred in 5 (lasted seven days), 15, 36, 51, 69, 79 and 97 AD. Starting from the Roman annexation of Egypt in 30 BC and until 155 AD favorable floods occurred more frequently in the Nile.
The winter of 69/70 AD was the driest known to Tacitus when he wrote his Histories around 100 AD; exactly at the same time the dry season persisted in the Americas. Dry conditions returned during the reign of Hadrian. In Timgad – on Hadrian’s visit to that city in 133 rain fell for the first time in five years. Some parts of the empire, however, saw better precipitation.
The same pattern is playing out today; It’s a pattern that returns every 500 years as the temperature on Earth reaches a cycle high and then turns down again. There is always a market crash that accompanies this cycle top.
Above is a diagram from Dr. Raymond Wheeler’s decades-long study of climate cycles and events stretching back to 600 BC. You can see the temperature (black solid line) reaching a high about the year A.D. 70. Wheeler’s temperature cycles and work is fully supported by the GISP2 data acquired in the 1990s through ice core samples undertaken in Greenland.
Extreme weather that marks the change to a cold/dry climate always leads to palace intrigue, civil war, depression, weak and/or tyrannical leaders, and social upheaval. Following is a brief history of the period around the Roman “high.”
At the time of Christ, the Roman Empire had reached its peak and was beginning a decline. Empires decline when the temperature turns colder. It begins with a warm, moist period (often with floods) and then gradually turns colder and drier. Caesar ruled at the heigh of the Roman Empire, of course, and was assassinated at the end of his reign (thanks Brutus!). After the peak in temperature, the empire began to fall apart through civil wars, and unrest.
The emperor Augustus (ruled 27 BC – AD 14) was a dictator and presided over major wars on the Empire’s borders. Persecution of Christians went on for some time as the empire began to fall apart. Next up were Tiberius and then Caligula. Caligula was assassinated, as were so many other rulers of the following period of decline. (Note: there were two calendars in operation at this time, so some dates differ by a year or two).
Temperature had already turned colder. Caligula reigned from AD 12 – 41 and is remembered for his cruelty, sadism, extravagance, and sexual perversity, presenting him as an insane tyrant (a theme of colder climates). Claudius (41 – 54 AD) followed as the next emporer, but although a kinder autocrat, had great difficulties ruling and was eventually murdered by his wife.
Nero followed, generally viewed as compulsive and corrupt (AD 37 – 68). Temperature continued to drop. Rome virtually burned to the ground during his reign (AD 64). He also began the First Jewish-Roman War, often called “The Great Revolt.” It was a time of continual revolution and revolt in various regions of the empire. His death (suicide) led to a period of civil war.
In AD 69, four emperors ruled in succession. Major unrest and rebellions continued. Domitian followed and is described as and autocrat and despot. He was finally assassinated in AD 96. Nerva then came to power and was the first Roman Emperor to be elected by the Senate. so we start to see autocratic rule changing into a more democratic approach. This is an ongoing theme during these intense periods of revolution. Democracy tends to eventually get a new lease of life, but it’s not an easy journey, and in fact, this was a little ray of hope in a much longer road into authoritarianism.
A 172 Year “Double” Top
Above is a climate chart produced by Dr. Raymond Wheeler (in the 1940s) of the climate cycle turn at about 1600 AD. I’ve placed a purple line spanning the two cycle top dates of 1492 – 1664 (a total span of 172 years).
Notice that this top had an unusual warm-wet peak, but then turned dramatically colder at about 1630 AD. Warm-wet periods are “golden ages,” and you can see that the renaissance dominated the period leading up to the temperature high, with the work of both da Vinci and Michelangelo playing major roles. The Reformation, which was also in full swing, made the period volatile from a social and political perspective. The Reformation was ushered in at the time of Martin Luther (1517) and Henry the VIII’s reign was a turning point for Great Britain in this respect.
1491 and 1662 marked 172 year cycle tops (If you divide 515 by 3, results in the harmonic 172 year cycle, which is every bit as tumultuous economically as the higher degree 5151 year cycle top). 1662 was a “higher degree” 515 cycle top. It followed on the heels of a temperature high.
“Famine, pestilence, and economic depression were accompanied by war. The entire century from 1551 to 1650, peace prevailed throughout the continent only in a single year (1610)—a record unmatched since the 14th century. These conflicts were remarkable not only for their frequency but also their ferocity. By far the most disruptive was a cluster of religious and political conflicts that historians call the Thirty Years War (1618-48). This great conflict was a catastrophe for central Europe. Historian Gunther Franz estimates the population of Germany declined by 40% from 1618 to 1648—a larger proportion than were killed by the Black Death. Other scholars think that losses were not so high, but all agree that the human cost of the Thirty Years War was very great; appalling atrocities routinely occurred.
In 1591, the weather turned wet and cold. European peasants watched helplessly as their wheat and rye were beaten down in the fields, and their hay crops rotted in the meadows. The same thing happened the next year, and the year after that, and altogether seven years running. In France, the wine harvest was late and small from 1591 to 1597. Grain crops fared even worse. The decade of the 1590s was so cold the Alpine glaciers began to send rivers of ice through inhabited valleys.
Similar events had happened before, but in the 1990s, they came at a time when the economy was dangerously overstrained. Families had little in reserve. Food riots broke out in many parts of Europe. As the troubles continued, people began to starve. A season of scarcity grew into a massive famine that was called “The Great Dearth.” There were terrible scenes of suffering in many parts of Europe.” —The Great Wave, David Hackett Fischer
When climate turns colder, it leads to civil war and in this case, that’s exactly what happened, with the English Civil War and many years of social unrest following.
Britain until this time has been Roman Catholic, but it was under the rule of Henry VIII that the Protestant religion began to take hold and it was Thomas Cromwell who was at the center of this dramatic change. I’ve written about the roles of Cromwell and Henry the VIII and their similarities to Bannon and Trump here. Under Henry VIII, Feudalism ended—a major financial upheaval. I would expect something similar with the revolution we’re about to experience, some 500 years later.
Under feudalism, the King was answerable to the Pope. At the end of the Middle Ages King Henry VIII clashed with the Pope and England subsequently broke with the Catholic church of Rome and the power of the Pope. This led to the establishment of the Church of England and the Dissolution of the Monasteries. It was the final ‘nail in the coffin’ of the Medieval Feudal System, feudalism, in England.
Dr. Wheeler (who read over 200 history books in his quest to equate societal change with climate, also wrote about the period following the year 2000:
“Current events show that another world convulsion is occurring second only to
- the emergence of rational thought in the sixth century BC,
- the fall of Rome and other ancient civilizations in the 5th-century and the beginning of the medieval world based on feudalism, and
- the final collapse of the Middle Ages in the 15th-century.
The current convulsion will be comparable to the birth of Christianity in the first century and to the birth of the modern nation as a feudal principality in the ninth and tenth centuries.” —Dr.Raymond H. Wheeler
A Word of Caution
We’re close to a major market top. I don’t expect a “truncation” (’cause I don’t believe in them—I’ve never seen one … ever!) But the final wave could be shorter or longer than expected. Sometimes we see very short little fifth waves within that fifth wave, for example. And fourth waves, which is what the main USD currency pairs are currently tracing out exceed their targets most of the time (only in the case of a flat do they hit a target precisely.
The other issue is that near a market top, retraces in the opposite direction of the trend tend to go deeper than usual, and can be quite scary—until they dramatically turn in the other direction, with almost no warning.
One final thing to keep in mind is that there could be quite a bit of volatility at the top. Nobody’s seen a 500 year top, so we don’t have a lot to go on.
Volume is light, which means that almost everyone is “in” on the long side and smugly enjoying their profits, believing this market is going to continue on for a whole lot longer. Of course, a lot more are “out.” It’s amazing how many hedge funds have folded as they simply haven’t been able to make any money (and are unsure of where the market is going). In any event, that takes a lot of money out of the market.
But the biggest factor is the sentiment of “the herd.” As the climate turns and Mother Nature continues to take her toll (hurricanes, flooding, tornadoes, etc.), crops will be affected. Mood is gradually turning negative. We have an opioid “pandemic” across the US and Canada certainly, and that tells you lots about the psychological “pain” that’s out there.
Mother Nature is all powerful, and she always wins in the end.
It’s going to get a lot worse before it gets better. Start getting prepared for a decades-long “winter.”
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The Market This Week
Here's the latest daily chart of ES (emini futures)
Above is the daily chart of ES (click to enlarge, as with any of my charts).
UPDATE: Sept. 12 — Today, we confirmed the ending diagonal in ES as the third wave exceeded the first wave high. This slightly changes the slope of the triangle. Otherwise, the pattern is similar to that of a contracting triangle.
With wave 3 in place, we can expect wave 4 down to a area around the lower trendline. Finally, we'll get a final fifth wave (in 3 waves) up to a final high. The fifth wave cannot be longer than the third wave. However, picking a final target for the fifth wave high will depend upon where the fourth wave down stops. I don't expect the final wave to be more than a few points about 2500 based upon the pattern so far.
Volume: Note that volume now expands with selling, but drops considerably when the market heads back up. This is yet another signal of an impending top. It will likely pick up a bit during the final wave to a new high but drop off suddenly towards the final top.
Summary: The final wave five in ES,NQ, and SPX is in progress. We have an ending diagonal confirmed with a fourth wave down still to complete (then look for a final fifth of fifth wave up to a new high to complete the 500 year bull market).
Above is the daily chart of NQ (Nasdaq futures) to give you the prognosis for the "tech" side of the equation. We have an ending diagonal in the final stages, requiring a final rally in the balance of a fifth wave.
Being an ending diagonal, the fifth wave cannot be longer than the third wave, which puts the maximum level for this final wave of the 500 year rally at 6190.
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