LunaticTrader

Investing with the Moon

At the breaking point

Posted by Danny on July 21, 2014

US markets tried to rally last week, but didn’t succeed to print new highs, with the exception of the Dow Industrials. The market appears heavy, but hasn’t really broken down yet, so a further grind to marginally higher highs is still possible. Let’s have a look at the S&P 500 (click for larger image):

S&P 500

The market is right a breaking point. A narrow 3 month up trend channel supports the market at current levels, but any drop below 1950 would not bode well. On the upside a +2000 print remains possible, and would become inevitable if this narrow trend channel is to hold up for another month.
Meanwhile my technical indicators continue to point downwards, and the weekly MoM for the S&P has now turned down as well. So, this is not a setup I want to buy or stay heavily long. At best we are in a sideways correction, but the risk for a sudden downside acceleration is quite high. We have been in a higher highs and higher lows pattern since mid April. Once that sequence ends the S&P will drop 100 points quickly imo, much like it did in January.

Good luck,

Danny

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Key reversal levels for week of July 21, 2014

Posted by Danny on July 20, 2014

Our key tables and comments for this week, now in slideshow format (click on expand button to see in fullscreen).
If you have any trouble to see the presentation below, then you can also watch it directly on slideshare.

Stay tuned, Danny

 

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Chances for another high

Posted by Danny on July 14, 2014

US markets dipped last week, but recovered some ground already on Friday. Our LT wave chart for July indicated a bottom for the 11th, looks like it missed by a day. We are about to enter another lunar green period. Can this market climb to new highs once again?

Let’s have a look at the Nasdaq chart (click for larger image):

Nasdaq

Last week’s drop saw the Nasdaq restest the March highs after the recent breakout to the upside. A drop below 4350 would tell us it was a false breakout, which would be a bearish signal. But so far the market has successfully defended that level. Was this the first swing in an unfolding larger pullback? Maybe.
As I pointed out last week, my technical indicators are not looking good. But, with a lunar green period coming up there is now a good chance that the Nasdaq will pull out another rally attempt, before going down (in autumn?). It is not unusual for the Earl2 indicator to be early, and in a strong bullish market a downturn often does not start until the orange line falls below the red line. Also, the faster Earl (blue line) is now in bottom territory, which supports the case for another upward move.
This means there is room for a rally to new highs. It would probably take the Nasdaq up to approximately 4530, which is the Top1 target in our key reversal levels. At that level overhead resistance from long term trend lines will probably stop the market.
This rally should come within the next week or so, otherwise the deteriorating momentum is likely to lead to a second swing to the downside. If we get a drop below 4350, then the chances for another rally would become much smaller. 4200 and then 3950 become the initial targets in an extended pullback.

Good luck,
Danny

 

Posted in Financial Astrology, Market Commentary | Tagged: , | 2 Comments »

Key reversal levels for week of July 14, 2014

Posted by Danny on July 13, 2014

Our key tables and comments for this week :

* The FTSE100 index has gone into fully bearish mode, the first major market to do so. The DAX is weak as well, but still holding above its weekly key reversal level. Both are testing their Bottom1 targets already. The US markets have been stronger and remain bullish with upward MoM on the weekly level.

* In the daily key levels all major stock indexes are showing downward MoM, which means a pullback is underway. Is it the start of something bigger? That is always possible. Every bear market starts with one down candle and with one down swing. Right now there is no reason for panic, but if the US and Japanese market also drop below their daily key reversal levels, then the outlook for stocks will darken. So I wait and see.

* For the Nasdaq we have a new Top2 target at 4659.

* In other world markets the French CAC 40 has gone into bearish mode. Several other European markets are coming close to do so as well: Italy and Switzerland. New problems brewing in Europe? Hmmm, just old problems resurfacing… Weekly MoM has also turned down for the MSCI World index, marking a possible long term peak.

* Bonds (TLT) have bounced back, but weekly MoM keeps pointing down for the bond market.

* Gold is back to fully bullish. $1415 is the Top1 target if we get another leg upwards. Now it is becoming DO time for gold.

* The Euro is stuck around 1.36. Key levels are bearish for the Euro at the moment, but that doesn’t mean much in a market that has been going sideways for so long. A big move will come, but which way? Plenty of traders are probably looking to go long Euro on a breakout above 1.40, or to go short on drop below 1.34…, and that may or may not work, as fake out moves have become common. In a coiled market like this one I like to take a look at the monthly key levels for direction. Monthly MoM for $EURUSD is going down since May (it had been going up since August 2012) and a monthly close below 1.3264 would confirm the next major move is indeed down.

* Oil has dropped below its weekly key level and is now fully bearish. The Bottom1 target for oil is 94.60

* Our weekly key reversal levels for the 30 Dow stocks are available here. 28 stocks are bullish this week, up from 27 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

* A reader wrote me to tell how boring it is, e.g. my posts keep repeating “healthy bull market” for the Dow Jones week after week.
What to do? It is not as if shorting the Dow Industrials has been profitable in recent months. I can only repeat George Soros on that point: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
If the key reversal levels are boring it is actually a good sign, it means they are not pointing in a different direction every other week. And that can only mean we are getting good trending moves. E.g. the Nasdaq has been in weekly bullish mode for 79 weeks and counting. It doesn’t get any more boring than that. When we started posting them the weekly key reversal level for the Nasdaq was at 3221, now it stands at 4109, so that is 900 points of Nasdaq profit quietly locked in by our key levels. Meanwhile plenty of other analysts/bloggers have been trying to nail the top since the beginning of last year (if not before). I am sure they have not been bored. But how much have they lost by now (provided they trade their own calls)? 20%, 30%, more? By the time we actually do get a correction it will perhaps give them back half of the money they lost, or back to breakeven if they are lucky (provided they have not given up trading their own calls by then). That’s a big price to pay for being able to say “told you so”.
Some day our key levels will stop saying “healthy bull market”. Maybe next week, next month, next year… It will come.

***

Here are the updated tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,415.49 4,109.03 6.88 79 42.93
S&P 500 1,967.57 1,861.01 7.57 84 38.92
Nikkei 15,164.04 14,607.06 3.08 5 -0.26
FTSE 100 6,690.20 6,834.48 1.32 0 0.00
DAX 9,666.34 9,409.44 4.08 15 0.46
Bonds (TLT) 113.58 109.23 2.31 24 6.46
Gold (spot) 1,338.12 1,279.81 0.47 3 1.76
$EURUSD 1.3607 1.3729 -2.19 8 -0.60
Oil (CL) 100.83 104.15 2.36 0 0.00

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: http://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

7/11/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,415.49 4,342.43 3.49 35 6.76 2
S&P 500 1,967.57 1,948.25 3.24 35 4.20 2
Nikkei 15,164.04 15,128.86 1.04 36 5.22 2
FTSE 100 6,690.20 6,797.17 -2.79 3 -0.72 11
DAX 9,666.34 9,908.46 -3.60 3 -1.25 7
Bonds (TLT) 113.58 111.94 0.90 3 0.82 5
Gold (spot) 1,338.12 1,299.15 3.36 21 5.12 17
$EURUSD 1.3607 1.3643 -0.33 5 0.10 15
Oil (CL) 100.83 104.71 -5.52 5 -2.81 11

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: http://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4531 4659 * 3975 3742
S&P 500 2001 2031 1755 1641
Nikkei 15976 17220 13860 12940
FTSE 100 6800 7110 6642 6230
DAX 10240 10450 9682 8715
Bonds (TLT) 114.60 115.70 108.25 102
Gold (spot) 1415 1541 1160 1075
$EURUSD 1.3950 1.42 1.3403 1.2870
Crude Oil(CL) 109.24 112.47 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: http://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Good luck, Danny

 

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Déjà vu in the S&P 500

Posted by Danny on July 7, 2014

Stock markets seem unstoppable. The Dow has broken above 17000 and the S&P 500 is closing in on the 2000 level, completely in line with the S&P scenario we posted two weeks ago.
The market setup is now a carbon copy of the one we had in late December (click for larger image):

S&P 500

Overhead resistance is in the 2000-2050 area. My technical indicators are unimpressed by last week’s rally and are signaling weakness ahead. This is not a setup I want to buy, the risk/reward ratio is too poor.
I think we will get a correction before the end of September. But I also think it will be brief. Money will pour out of bonds and into stocks as soon as we get anything that looks like a “correction”. Why? Bonds are most attractive when rates are high and about to go down. Bonds are least attractive when rates are very low and about to go up. So, once the Fed starts raising rates, bonds will become even less attractive than they already are. Where is that money going to flow? If it flows into stocks we will get a 1920s mania, and if it flows into commodities it will trigger high inflation. There is no graceful way out of the ZIRP+QE hole they have digged. Of course, they will conveniently blame “speculators” for the next round of problems.

For those who keep an eye on the 1920s scenario, the chart is now updated for June (click for larger image):

Dow vs 1920s

The correlation is now up to almost 91%. When will the scenarios depart? Same policies, same results? We will find out.

Good luck,
Danny

 

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Key reversal levels for week of July 7, 2014

Posted by Danny on July 6, 2014

Comments for this week :

* US markets have continued to push higher, while the UK and Germany are more cautious and continue to sit near major resistance levels. Weekly key levels remain bullish for stocks.

* In the daily key levels all major stock indexes have followed the lead of the Nasdaq and are back in rally mode with upward MoM. People who are looking for a chance to go short would do well to wait at least until daily MoM turns down again, which is the earliest sign of a possible top. But remember, going short in a strong bull market usually means you end up paying for somebody else’s Ferrari. It is much easier to make money with the trend. Price is the only indicator that WILL tell us when the market has turned down, by first falling below the daily key level and then falling below the weekly key level. Once that has happened, then we can start looking to go short. No major bear market can start without the S&P 500 going below 1852.69, which is our current weekly key reversal level. Trading is waiting: first let the market prove to you that it has turned direction, and then act… and then wait again for the market to prove to you that the move has run its course. This is: don’t shoot before you actually see duck. It sounds easy but it is hard to do. Many traders just can’t wait until the fish bites. And it also took me 20+ years to really learn that lesson. If women are better traders it is because they are generally better when it comes to waiting. Men have to learn waiting, so they tend to become better traders with age.

* We have several new and updated key target zones this week. The old Top1 targets for Nasdaq and S&P 500 are now out of the way. The new Top1 targets are 2001 for the S&P 500 and 4531 for the Nasdaq (see table below).

* In other world markets we are still waiting for China, the only market that remains in bearish mode, to break above its weekly key level. A weekly close above 2073.86 would turn the Shanghai Composite bullish, and then all the stock markets in our list would be in bullish mode. That hasn’t happened since we share these tables here on the blog.

* Bonds (TLT) have gone into declining mode. A weekly close below 109.13 would turn bonds fully bearish. Some of the money that comes out of bonds is likely to move into stocks. When that happens we will enter the bullish final stage of the 1920s scenario.

* Gold is digesting recent gains. Still bullish.

* The Euro refuses to show its hand. Now turning daily bearish again. But MoM is turning up on the weekly level. Mixed signals = wait.

* Oil has not shown follow through to the upside and now we get the logical downturn. Needs a close above 105.55 to get back into rally mode.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 27 stocks are bullish this week, up from 25 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,485.93 4,089.30 6.17 78 45.21
S&P 500 1,985.44 1,852.69 7.39 83 40.18
Nikkei 15,437.13 14,551.48 2.67 4 1.53
FTSE 100 6,866.10 6,711.45 1.87 9 0.64
DAX 10,009.08 9,394.49 4.74 14 4.02
Bonds (TLT) 110.68 109.13 2.70 23 3.74
Gold (spot) 1,320.42 1,276.50 -0.37 2 0.42
$EURUSD 1.3593 1.3738 -2.26 7 -0.70
Oil (CL) 104.06 101.05 2.97 20 3.94

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: http://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

7/3/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,485.93 4,320.88 7.78 30 8.46 1
S&P 500 1,985.44 1,941.56 5.47 30 5.15 1
Nikkei 15,437.13 15,070.94 3.30 31 7.12 1
FTSE 100 6,866.10 6,778.87 1.11 2 0.73 5
DAX 10,009.08 9,872.29 0.21 1 -0.20 5
Bonds (TLT) 110.68 112.73 0.41 1 0.27 7
Gold (spot) 1,320.42 1,290.50 5.15 16 3.73 2
$EURUSD 1.3593 1.3652 1.95 0 0.00 39
Oil (CL) 104.06 105.55 -0.87 0 0.00 35

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: http://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4531 4588 * 3975 3742
S&P 500 2001 2031 * 1755 1641
Nikkei 15976 17220 13860 12940
FTSE 100 6800 7110 6642 * 6230
DAX 10240 10450 9682 * 8715
Bonds (TLT) 114.60 115.70 108.25 102
Gold (spot) 1415 * 1541 1160 1075
$EURUSD 1.3950 1.42 1.3403 1.2870
Crude Oil(CL) 109.24 112.47 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: http://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Stay tuned, Danny

 

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LT wave for July

Posted by Danny on July 3, 2014

Last month’s LT wave chart suggested weakness in stock markets. That didn’t pan out for the US indexes, but still the wave got most of the short term swings correct. I have embedded a S&P 500 chart for June, making it easier to see (click for larger image):

LT wave

The blue line did a fairly good job indicating the swing highs and lows. Clearly, the yellow line didn’t work.

For July we see expected swing highs around the 8th, 18th and 26th. Projected lows on the 2nd, 11th and 23rd. Based on the yellow line we can look for weakness in the first half of the month and a stronger second half.

Again, don’t expect perfection, this LT wave is based on an experimental concept. Some months it will match closely, but I expect there will also be months when it misses completely. Sometimes people ask me when is the best time to start using this LT wave. I think that in general the best time to start using a method or indicator is not when it has just been on a hot streak. It is always better to wait until the system has just had some bad months (years). Better be careful in crowded stocks and in crowded methods.

Good luck,

Danny

 

 

Posted in Financial Astrology, Market Commentary | Tagged: , | 4 Comments »

Why deflation is a blessing

Posted by Danny on June 30, 2014

Average wages are stagnant in the developed countries. Which also means that consumer spending is stagnant, because in the longer term people can spend only as much as they make. So, the economy stays weak. What is the solution? Central banks are trying to create more inflation, as if that will somehow wake the developed economies out of a coma. But will it? More on that below.

Let’s first have a look at the Nasdaq (click for larger chart):

Nasdaq

Not much has changed since our previous look at the Nasdaq. The market has climbed another 50 points, but the market is still bumping into overhead resistance from the dashed grey line. And the bearish divergence continues in the Earl indicator, while the Earl2 is now clearly turning down from a top. These indicators tend to be a bit early (which is why I called them Earl), so it doesn’t mean the market has to drop immediately, but the odds for a further rise are not good.
We will also enter a new lunar red period tomorrow, so chances are we will see weakness start in the next weeks. My current estimate is for a pullback to take the Nasdaq down to ~3900 by September. What would invalidate this picture? Well, a new upside acceleration with the Nasdaq surging above 4500 would point to the start of a blow-off peak phase, and that has probably some 10-20% chance at this point.

***

So, our central banks are trying to create more inflation. Whenever there are new laws or stated policy goals there is always one important question to ask: “Who will get any better of this?” Will it be you and me? Or somebody else? Whose purposes are being served?
Suppose they succeed in creating more inflation. E.g. Prices of food and computers start going up. Does that make things any better for you? Doesn’t that mean consumers will have little choice but spend more on those items, and thus have a smaller portion of their family budget left for other purchases? That would be bad news for companies in those other sectors. We always see the same reasoning when gasoline prices go up: it will leave consumers with less money for other products. It is true, but then why would it suddenly be good news if it are e.g. food and computer prices that go up?
If they succeed to create more inflation it will depress consumption. As an example we can look at Japan already. They finally managed to drive annualized inflation up to 3.4% in May. What most news reports failed to mention is that Japanese household spending simultaneously dropped by 8% y/y , much worse than expected. Why does that surprise anybody? The Japanese are already used to see their real income decline. Now they also start feeling that life is getting more expensive (thanks to a weaker Yen and higher taxes). So, their response is to try to save even more, because that stash of Yen they always kept in the bank suddenly doesn’t look sufficient anymore to meet their future retirement needs if cost of living keeps going up like that. It’s a normal reaction. So much for stimulating the economy with more inflation. Letting prices deflate would do more good than trying to prop prices up by artificial means like QE.
Then why are central bankers so much against it? Well, they are not serving the population, they are serving the bankers and the government, and those are the entities that benefit from inflation more. Deflation is simply a sign of progress. If technology advances we can make the same product cheaper, or produce a better product for the same price. Letting deflation happen means that the benefits of those productivity gains (coming from technological progress) are spread evenly among all the participants in the economy. Everyone enjoys cheaper products, leaving him with more money to spend on other products or new products. What’s not to like? Well, bankers don’t like it. They can profit more in an inflationary environment. They have figured out that by creating inflation, the ongoing productivity gains of the economy can be made to flow mostly into their pockets. The consumer meanwhile, finds it ever more difficult to maintain his standard of living, because inflation always seems to push prices up more than his wage goes up. He then needs a loan, another mortgage, or an extra creditcard, just to keep up… And over time that pumps a significant portion of his income straight into the banker’s pockets, in the form of interest payments. What’s not to like for the banker? From his perspective, letting deflation happen is like letting his business die.
That’s why we continue to hear that higher inflation is needed. It would be terrible if the cost of living went down for the average consumer, isn’t it? These middle class people wouldn’t need loans anymore. And imagine the protests in the third world if food and housing started to become cheaper for them as well, leaving them with money for the education of their kids. What a catastrophe that would be… Noble institutions like the IMF and UN would start feeling useless…

Our society and economy has become so perverted it is probably going to be beyond belief for future historians who study our period. Our governments punish creativity and productivity with high taxes, while rewarding doing nothing with social security payments. It is as if the biggest crime in this world is to make money, because we use large fines (taxes) to discourage it. And cost of living going down (deflation) is considered bad, our economists prefer cost of living going up (inflation) and successfully promote that as being more desirable, all the while millions are lining up for soup with food coupons.
What if we did just the opposite:
1) reward creativity and productivity ( = zero or negative income taxes )
2) punish doing nothing ( = tax on money hoarding )
3) embrace the deflation that comes with improving technology

There would be no jobless and no debt. There would also be no profits for banks. Just call me crazy.

Stay tuned,
Danny

 

Posted in Financial Astrology, Market Commentary | Tagged: , , , , | 14 Comments »

Key reversal levels for week of June 30, 2014

Posted by Danny on June 29, 2014

Comments for this week :

* We have updated our page explaining the key reversal levels with a lot of new info and details for the different strategy numbers as found in the last column of the daily key tables. This should make it easier to understand and follow this approach. I hope to add more detail in the future, the page remains a work in progress.

* For those who wonder what’s the point of these tables. Well, among other things it offers an objective take on the market. And that can be very useful, for example when market sentiment differs noticeably from what the key reversal levels tell us. For example, in an early February blog post I observed how the media had become very negative about emerging markets, yet my weekly key reversal levels were starting to give buy signals for countries like Indonesia. A few weeks later there was a buy signal for India. If you bought on the next Monday you now sit on profits of 8 and 19% respectively. The system doesn’t always win, but the losses are usually small versus the profits. That’s always the main feature of a good trend following system. The small losses you take are the entrance fee you pay to get in on the big trending moves.

* Back to the key tables for this week. Weekly MoM is turning down for the DAX, so we have more markets that go into hesitating mode. Daily MoM has turned down for most stock indexes, but it is now turning back up for the Nasdaq. On outlier? Or will the other indexes follow the Nasdaq to the upside? We will find out soon.

* In other world markets weekly MoM is turning down for Brazil, France, India and Italy. That’s a warning sign, especially for India where MoM has reached a very high +9 reading.

* Bonds (TLT) are still looking for direction.

* Gold is taking a pause after its recent jump. It is holding up well so far, but will need another push higher to confirm that a new up trend is in place. Daily MoM has turned down for gold, so it could see a retest of the $1290 breakout level before possibly heading higher.

* The Euro is going into daily bullish mode. I have been warning that Euro could surprise to the upside. If it gets back above 1.38 then a short covering rally could quickly take it higher and turn the Euro fully bullish. It is that scenario that is probably pressuring European stocks for the moment.

* Oil is also pausing, but still bullish according to the key levels.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 25 stocks are bullish this week, down from 26 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,397.93 4,065.66 4.83 77 42.37
S&P 500 1,960.96 1,843.56 6.79 82 38.45
Nikkei 15,095.00 14,494.82 1.94 3 -0.72
FTSE 100 6,757.80 6,707.99 2.16 8 -0.95
DAX 9,815.17 9,366.08 4.81 13 2.01
Bonds (TLT) 113.24 109.05 3.41 22 6.14
Gold (spot) 1,316.02 1,273.23 -1.08 1 0.08
$EURUSD 1.3647 1.3743 -2.27 6 -0.31
Oil (CL) 105.74 100.76 2.91 19 5.61

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: http://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

6/27/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,397.93 4,282.82 4.81 26 6.33 17
S&P 500 1,960.96 1,933.31 4.18 26 3.85 2
Nikkei 15,095.00 14,959.50 5.06 26 4.75 2
FTSE 100 6,757.80 6,813.64 -2.98 10 -0.30 7
DAX 9,815.17 9,943.03 -1.75 2 -0.80 7
Bonds (TLT) 113.24 111.89 2.23 3 0.12 5
Gold (spot) 1,316.02 1,279.74 7.44 11 3.39 2
$EURUSD 1.3647 1.3586 1.13 0 0.00 37
Oil (CL) 105.74 104.31 2.72 32 3.76 2

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: http://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4390 4531 3975 3742
S&P 500 1950 2001 * 1755 1641
Nikkei 15976 * 17220 13860 12940
FTSE 100 6800 7110 6677 6230
DAX 10240 10450 8715 8510
Bonds (TLT) 114.60 115.70 108.25 102
Gold (spot) 1424 1541 1160 1075
$EURUSD 1.3950 1.42 1.3403 1.2870
Crude Oil(CL) 109.24 112.47 * 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: http://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Stay tuned, Danny

 

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Buy China

Posted by Danny on June 23, 2014

Last week I asked: is the bull exhausted? The answer seems to be a resounding no. The S&P 500 has burst into new highs already, so it looks like its quick pullback to 1925 is all we can get as far as ‘corrections’ go in the current environment. The round number 2000, which would be a major milestone for the S&P, is looming large and becomes a magical attractor at this point. It could be reached sooner rather than later.

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

S&P 500

The S&P 500 has broken out of a rising wedge twice, and to the upside! So much for rising wedges being bearish. It has successfully retested the most recent breakout and marched on to higher highs. That’s as convincing as it gets. That doesn’t mean this move cannot fail anymore at this point, but smart investors go with what they see and change their mind when the situation changes. Right now this market is telling us it still wants to go higher.

Technically the picture has improved as well. My short term Earl indicator has made a shallow bottom and is going up again. The slower Earl2 is rather neutral sideways, could push for another high. With another week of lunar green period to go it looks pretty good. Looking at the trend lines, the S&P 500 has room to rise until 2000-2050, where overhead resistance from long term trend channel would be met. The 1900 level is now major support, a drop back below that level would prove the recent breakout false.

Meanwhile, blogs and social media are full with reports suggesting that investor sentiment has become too bullish, suggesting that we must be very close to a major peak. But is that so? Here is a good read exploring that topic: click. “Maybe everyone isn’t so bullish?..”

The one market that hasn’t participated in the worldwide rise in stock prices so far is China. But that could be set to change soon as you can see in this chart of the week. A few months ago I shared an indicator I call adverse move ratio, which I use on monthly charts to determine long term bullish/bearish condition of markets. And right now the adverse move ratio for the Shanghai Composite suggests its bear market is ending (click for larger image):

SSEC

The Chinese stock market has been grinding down for years, much like it did in 2001-2005. In recent months the SSEC has been printing very small candles while flatlining, just like it did in late 2005. This suggests that selling has dried up. And the adverse move ratio is climbing back above 1, signalling the start of a bullish phase. That doesn’t mean we will get another rampant bull market like China experienced in 2006-07, but a climb to 4000 is easily possible. Based on my weekly key reversal levels, the Chinese market will effectively turn bullish on a weekly close above 2079.

Good luck,

Danny

 

Posted in Financial Astrology, Market Commentary | Tagged: , | Leave a Comment »

 
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