LunaticTrader

Investing with the Moon

Outlook for September

Posted by Danny on September 1, 2014

Stock markets have reached new highs last week. The S&P 500 has climbed above 2000 for the first time and now sits right at our Top target at 2004. Further gains appear likely, but September and October are two months with a rather bad reputation and that may prompt investors to take some profits.

Let’s have a look at the current S&P chart (click for larger image):

S&P 500

The recent price action is very similar to what we got at the start of 2014. After a sell-off the market has swiftly climbed to new highs. Based on the trend channel a further climb to 2050 is feasible. But we have just entered a lunar red period and the Earl and MoM indicators appear to have turned down already. So, I think the market will first try to digest the recent gains.

A similar outlook is seen in the LT wave for September (click for larger image):

LT wave

The wave did fairly well in August, marking the low early in the month and then climbing into a high on the 29th. Expected weakness in the middle of the month did not materialize.
For September the LT wave projects a period of weakness until the 20th, and a high on the 25th or 26th.

I have also updated the 1920s comparison chart (click for larger image):

dow_vs_1920s

The Dow Jones Industrials continues to mimic the price action of the 1920s very closely. We are now approaching the point where the market took off after almost a year of sideways consolidation. So, it will be interesting to see what happens.

Stay tuned,
Danny

 

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Key reversal levels for week of September 1, 2014

Posted by Danny on August 31, 2014

Our key tables and comments for this week, now in slideshow format. Click the “Expand” button (bottom right) to watch in full screen mode. Click on “Slideshare” (bottom left) if you want to save and print it.

If you have any trouble to see the presentation below, then you can also click here.

Good luck, Danny

 

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The case for Dow 32000 Updated

Posted by Danny on August 27, 2014

Here are some updates on a series of long term charts I posted last year. Interestingly the case for Dow 32000 is still alive and kicking. Who would have thought?

Let’s start with the Dow going back to 1928. This is a very large image, so click on it to see the full detail:

Dow monthly

The Dow has reached the long term overhead resistance line connecting it with the 2000 and 2007 peaks. It has also kept above the trend line that started from the 2009 lows. The market is increasingly squeezed between these two lines, not able to make up its mind where to go next. But we are going to find out soon.

Zooming in on the recent decades we can see the situation more clearly (click for larger image):

Dow monthly

The Dow has been sputtering near the 16500 resistance level all year. But now it appears to be breaking out above 17000. And that was the final criterion for my Dow 32000 scenario, as I wrote last summer:

A few conditions will need to be met for this very bullish scenario to remain in play:
1) The current correction has to be shallow and cannot venture too far below 14000 before recovering.
2) The green overhead resistance line, connecting the 2000 and 2007 highs, will have to be overcome and left behind. That’s not going to be an easy feat. But with all the ongoing QE, who knows?
3) This breakout above 17000 would have to come by summer 2014.

So, what next? The breakout above 17000 could still prove to be a false breakout, and that’s what more than a few market observers are calling/hoping for. But I would not rule out the case that this market will simply continue to climb to 20000+ by early next year. Few people are betting on it, the market “needs” a correction, isn’t it? I would rate chances for a further climb at 30%.
Another possibility is a drop to ~15000 this autumn, which would break the up trend line since 2009 and clean out “weak hands”, only to rebound and climb to 20000+ in 2015-16. I would rate this a 50% chance.
Third possibility is a drop to ~15000 with no buyers showing up and then a further decline to 10000-12000 or lower. I would rate this a 20% chance at the moment.

Good luck,
Danny

 

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Garbage in garbage out

Posted by Danny on August 25, 2014

What ingredients go into our trading decisions? Opinions we hear in the financial media? Technical indicators that draw colorful lines on our screen? The latest forward “guidance” issued by the central bank? The next full moon or Jupiter in Leo? The AAII sentiment survey numbers? The stock picks we see on scutify.com? The Elliott wave count? Kayla Tausche’s smile? The geopolitical ebb and flow? Seasonal tendencies?
“Garbage in garbage out” is a saying that originates from computer programming, but it also applies to trading. More on that after our weekly look at the market.

Let’s jump right in with the latest Nasdaq chart (click for larger image):

Nasdaq

The markets have been kind to my latest forecasts for Nasdaq and have climbed straight to the 4530 target. See: Setting up for an August peak and Bending but not Breaking. But let’s not get carried away. Markets being markets: pat yourself on the back for good results and the next thing the market gives you is a good slap in the face. Last week’s results are of no help in the next. The confidence gathered in week 1 can become a trader’s undoing in week 2. That’s in the nature of the beast we call a stock market. But you knew that already, isn’t it?

So, here we are at 4530. The Nasdaq is bumping into an overhead trend line. The lunar Green period is set to end later this week. Sell quick? Hmmm, maybe.
Technically my Earl indicator is just turning down, suggesting some kind of pullback is up next. And the MoM is reaching a very optimistic +8 level, the kind of stuff that has made for peaks in the past.
But the slower Earl2 has just turned up from major bottom. What to make of that? I guess it means we are once more in a situation that can go either way: a further surge to 4660 or a drop to ~4000. Isn’t that always the case? Well, yes…

***

So, what’s with that garbage I mentioned earlier on? Well, more ingredients doesn’t necessarily mean we will cook better. Sometimes readers observe that my posts are rather minimalistic, just my lunar cycles stuff with a few indicators and my read on them. Why am I not mentioning VIX, margin debt or put/call ratio? What about the sunspots cycle, or Mercury retrograde? What about the Fed tapering? The reason is the “garbage in garbage out” principle:
* Broad market indicators like VIX, margin debt and put/call were found to be ineffective in a broad based study. See: Technical Market Indicators: An Overview
* Another big test of more than 5000 technical trading rules in a wide variety of market resulted in failure. See: Technical Analysis Around the World
* Sunspot cycles have not shown any consistent effect in the market, as you can see in my earlier article and in this study: Sunspot Cycle and Stock Returns. And because there are only 20 observed solar cycles, any results would suffer from the “law of small numbers” anyway.
* As for Mercury retrograde, it was found equally useless as you can read here: The myth of Mercury retrograde

Many traders tend to think that more tools, more news, more indicators or more newsletter subscriptions will make their trading more profitable. And there is a whole industry that banks on traders’ insatiable demand for more tools and advice. How about trying the opposite: throw out everything that is demonstrably garbage, and you may end up with something that works…

Good luck,
Danny

 

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Key reversal levels for week of August 24, 2014

Posted by Danny on August 24, 2014

Our key tables and comments for this week, now in slideshow format. Click the “Expand” button (bottom right) to watch in full screen mode. Click on “Slideshare” (bottom left) if you want to save and print it.

If you have any trouble to see the presentation below, then you can also click here.

Good luck, Danny

 

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Pendulum market

Posted by Danny on August 18, 2014

Fears rise on Friday, next they ease on Monday…, a pattern we have been seeing for weeks. Like a pendulum swinging. Will it continue that way? It is quite possible. Just like last week, I remain mildly positive about the market as long as each relief rally goes a little higher than the previous one. That’s how walls of worry get climbed.
Let’s have a look at the S&P 500 (click for larger image):

S&P 500

The rebound has taken the S&P to double overhead resistance. Earl and MoM indicators turned up from major bottoms a week ago, and now the slower Earl2 is at the point of turning up as well. Technically, a further rally to 2000+ is easily possible, but of course not guaranteed.
A failure to climb above 1970 would not bode well for the market and a decline below 1910 would confirm a second move to the downside.

Good luck,
Danny

 

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Key reversal levels for week of August 18, 2014

Posted by Danny on August 17, 2014

Our key tables and comments for this week, now in slideshow format. Click the “Expand” button (bottom right) to watch in full screen mode. Click on “Slideshare” (bottom left) if you want to save and print it.
If you have any trouble to see the presentation below, then you can also click here.

Good luck, Danny

 

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Bending but not breaking

Posted by Danny on August 11, 2014

Stock markets were clearly under pressure most of the week. But Friday’s rally pushed the S&P and Nasdaq into the green for the week. That’s quite remarkable given the news stream. Looks like somebody is buying. The market is bending but not breaking.
Let’s have a look at the Nasdaq (click for larger image):

Nasdaq

Nasdaq has been building a base near 4325 with 5 touches in the last 6 trading days. Can it now rally from this level?
My Earl indicator is turning up from a triple bottom and the slower Earl2 is entering bottom territory but not turning up yet. MoM indicator is close to the blue depressed zone, but also not turning up yet. This means a rally from current levels is certainly feasible. And we will be starting a new lunar green period later this week.
On the downside, the blue long term trend line is an important hold, currently around 4300. Market may continue in muddle through mode until this blue line gets touched. If the 4300 level doesn’t hold the market then a further drop to 4000 becomes very likely.

All in all I am mildly positive for the next few weeks, and the scenario for a climb to 4500+ is still valid. A close below 4300 would cloud the outlook significantly.

Good luck,
Danny

 

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Key reversal levels for week of August 11, 2014

Posted by Danny on August 11, 2014

Our key tables and comments for this week, now in slideshow format. Click the “Expand” button (bottom right) to watch in full screen mode. Click on “Slideshare” (bottom left) if you want to save and print it.
If you have any trouble to see the presentation below, then you can also click here.

Good luck, Danny

 

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The next breaking point

Posted by Danny on August 4, 2014

In our most recent review of the S&P 500 we pointed out the market was at a breaking point, with all my indicators pointing down. US markets have indeed gone over the edge last week, and the rather quick drop has brought them right to the next breaking point. Here is the current S&P chart (click for larger image):

S&P 500

The S&P has dropped to support at long term trend line (green line) near 1930. Will buyers appear at this level? Maybe, maybe not. None of my technical indicators show any sign of a bottom at this point, but that could change if the market manages to hang on to this 1925 level for several more days. Clearly, the prospect for new highs in August, as we discussed in last week’s post, is now a more remote scenario.
Meanwhile, the Nasdaq sits right at the 4350 level, the July lows. This keeps the possibility alive for another run to 4500+… IF buyers show up this week.
Bottom line: both the S&P 500 and the Nasdaq are at a next breaking point. And the technicals still look poor. I think the odds for a rebound or sideways “hanging-on mode” are fairly equal to the odds of a quick further drop this week. If the current support level gives way then I would look for 1880 and then 1730 as likely downside targets for the S&P 500. If buyers show up at these levels then this will be another whipsaw move that is quickly forgotten.

Good luck,
Danny

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