LunaticTrader

Investing with the Moon

Outlook for week of August 21

Posted by Danny on August 20, 2017

Outlook for world markets with brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

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

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. Comes as a daily html file covering over 2700 stocks and ETF. To see what you get you can pick up recent free samples on this page. Instructions for use are included. Give it a try.

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

So bitcoin hits my long term target

Posted by Danny on August 14, 2017

Normally I write about bitcoin once a year, but since my last post in May the cryptos have become a very fast market and now my long term price target of $4246 is being reached. So, I will give a quick update and some new price targets.
But first I want to take a look at stock markets where some interesting things are happening too. Here is the current Nasdaq chart:

^COMP (Daily) 10_27_2015 - 8_11_2017

Nasdaq has reached 6400 and S&P 500 has stagnated just below 2500, which was the base scenario I mentioned a month ago. Markets had a quick dip last week. Nothing unusual, the S&P was down 1.4% for the week, but people have become so accustomed to low volatility that this was enough to get some traders panicked already. What are those traders going to do if the markets are down more than 2 or 3% in a week (or day)? We will find out some day.
Long term trend lines in Nasdaq and S&P and are being tested but not broken yet. As long as that is the case we better assume that the bull run is ongoing. We are more likely than not to get a rebound rally here. We are starting a new lunar green period and the Earl indicator is in bottom territory (but not turning up yet). Whether that rebound will be weak or strong I don’t know. A sustained drop below 6200 would not look good and then the chances for a rebound rally would dwindle quickly.
Keep an eye on August 23rd, when our LT wave will peak for August. If that paints any kind of high (rebound high, double top or even all time high) then we could very well see a new downturn in the ensuing days.

So, what about those bitcoins? In February 2014 I posted price targets based on my reversal levels calculations. Bitcoin was trading above $600 back then, but my bottom target of $180 was nicely reached by early 2015 and then bitcoin started climbing again. I reiterated my long term buy signal in October 2015, when you could still buy bitcoin at $280. Of course we had to wait longer to get to my top targets of $2457 and $4246, but here we are with bitcoin knocking on $4200 over the weekend. So, does this mean the move is now over?
I really don’t know here, because the $4000 level is a very critical juncture in the long term chart:

bit

Some people are warning about parabolic moves and bubbles already, but that’s because they are looking at a linear scaled chart. Moves of this magnitude can only be judged on a semi-log scale chart. What we see here is a sustained (but very high) rate of change, with the move confined to a rather narrow channel since 2015. The same rate of change it also held throughout 2012 before going parabolic in 2013. A sustained breakout above $4000 that quickly heads for $5000+ would start a parabolic move like in 2013. And then it can go above $10k. A failure to do so would probably give us a peak near my $4246 target and be followed by a significant decline when traders notice that the steep rally has ended.
Both scenarios have 50/50 chance at the moment, so if you hold bitcoin from a much lower cost base then I would sell some and hold the rest at zero cost base. A tulip mania type move is possible here and then bitcoin could reach $10k or $20k before a big panic.

Meanwhile my method shows two new price targets: $6430 could become relevant as a next top target or as a resistance zone on the way to even higher levels. And there is a bottom target at $1470. This would come into play if we get a big drop. Bear in mind, not all my targets and forecasts will work out. I am probably due for some bad calls on bitcoin.

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

Outlook for week of August 14

Posted by Danny on August 13, 2017

Outlook for world markets with brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

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

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. Comes as a daily html file covering over 2700 stocks and ETF. To see what you get you can pick up recent free samples on this page. Instructions for use are included. Give it a try.

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

Outlook for week of August 7

Posted by Danny on August 6, 2017

Outlook for world markets with brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

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

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. Comes as a daily html file covering over 2700 stocks and ETF. To see what you get you can pick up recent free samples on this page. Instructions for use are included. Give it a try.

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

Icebergs 3

Posted by Danny on August 4, 2017

A few years ago I introduced Iceberg charts on this blog. I kept posting them on Twitter and on this blog from time to time and now simply call them the “Icebergs”. Testing has been ongoing and a few new elements have been added, which will be explained in this post.

A brief recap for newer readers. I started experimenting with this idea because a picture says more than a thousand words. But our brain is not really made to read typical indicators that come in the form of a boring graph that dances up and down. Most people cannot combine more than a few such indicators in their mind. But technical charts are usually full of lines, averages and indicators, leaving investors glazed in front of their trading monitors when different indicators point in opposite directions. By creating a type of chart that resembles a landscape we can get very different results based on a picture we can intuitively understand. Thousands of years as hunter-gatherers and later farmers has left us with well developed skills to read the land. By generating a “landscape” based on stock data we can use that part of our brain to get a better read on the stock market. If you are a visual person then you will probably find a much stronger connection with this kind of landscape than with a set of abstract indicators.

The Icebergs are now in version 3 and here is a current example for Crude Oil, which we can use to explain all elements in this type of chart:

oil

The new elements compared to v1 are “gold” (yellow) and “fish” (black and pink dots in the water), and I have circled some examples in this chart. More on them later, let’s first explain the other landscape elements:
1) Green mountains, covered with more or less ice (grey). The more green the more bullish the stock is behaving at that point. Stocks in healthy bull markets show plenty of green mountain, often uninterrupted for months. The mountain peaks should get above 4 or 5 (see right hand scale) to be healthy. Some ice on the mountain is OK, but too much ice (and little green) means the continuation of the bull move is in question. If all green disappears it is a bearish sign.
2) When there is no ice left on a mountain you may see a red line (e.g. October 2016 in this chart), or “lava”. This indicates the market is very hot and probably at or near an important peak. A stock can stay hot for weeks, so don’t sell immediately. I usually sell half or all of the position as soon as the lava disappears. Not all lava will lead to major declines, sometimes you just get a sideways period followed by another rally.
3) Open water appears when no green mountain or even grey ice is present. This means the stock is dead in the water, bulls are too weak to take it higher and the stocks is probably grinding down or near recent lows (e.g. July 2017 in this chart). As you can probably guess, there is no good reason to own a stock that is dead in the water. We wait for green grass to tell us that a new bullish phase may be starting.
4) Sometimes you see icebergs in the water, small grey spikes with no green in them. Icebergs indicate that there is a rally attempt, but it is so weak that (almost) no green grass appears (no growth). Before you know it the stock is falling even further, if not sinking like the Titanic. Long term investors better stay away from icebergs and wait for a proper mountain.
5) Small islands are not much better than icebergs, usually followed by a further drop (e.g. May 2017 peak in this chart). But sometimes a small island is soon followed by a big green mountain, so they can be like the first green sprouts after a long winter.
6) In open water you will sometimes see floating ice (white lines in the blue water at the bottom, e.g. May and June 2017 in this chart). When you see floating ice it means hell is freezing over for the given stock. There is often floating ice at major bottoms, but not every case of floating ice is “the bottom”. If a stock is crashing it is best to wait until the floating ice disappears if you intend to buy near the lows. To play safe it is even better to wait for some green grass if you want to buy after a period of floating ice.
7) New: Gold (yellow) typically appears on a mountain peak, but can also appear on the beach or even in the middle of open water. “Gold on the mountain” (see Oct 2016 in this chart) usually indicates a kind of peak and is a good chance to take some profits. It may appear together with “lava” (red), as is the case here, and then it is an even stronger indication of a top. This doesn’t rule out higher peaks later on, as happened in this case, but if you sold in October you certainly didn’t regret it in November. Also note that not every peak gets “gold” or “lava”. The early 2017 highs came with an ordinary green mountain.
“Gold on the beach” is what you see in April 2017 here. If it is connected to green mountain through ice then we consider it “on the beach”. The meaning depends on what preceded. If the preceding months had mainly open water or ice, then it is like finding land with gold on the beach. This is usually bullish as it suggests there will also be “gold on the mountain” (=higher peaks) later on. But if gold on the beach is found on the declining side of a preceding mountain then it is bearish. That’s what we see in this chart. The gold on the beach was soon followed up by two significant declines.
If we see “gold in water” (not connected to any land) then it is generally short term bearish unless it is quickly followed by new land with green grass.
8) New: Fish (black and pink dots in the water). Just think “bottom fishing” opportunity with this one. Pink (think salmon) means a higher quality chance. Fish can appear when there is still land (see Nov 2016 here), then is usually a good entry for a short term swing trade. But it will usually appear in open water or together with “floating ice”. If you see pink dots under ice you can think “king crab” and that’s a major bottom fishing opportunity with the highest chance of giving way to a significant rally, if not the start of a new bull market. June 2017 was a good example here.

Now, this way of reading a chart takes some getting used to, but once you get the hang of it the system becomes difficult to forget. It really helps to visualize. Just picture yourself as a hunter-gatherer traveling through this landscape from left to right. If you take your bottom fishing opportunities along the road and grab the gold (= take profits) whenever you find it then you are likely to do well. The changing landscape also tells you whether the market is getting hotter or colder and icebergs warn you of potential dangers ahead. It becomes an alive journey dealing with unfolding challenges rather than trying to read abstract indicators like RSI and VIX index.

Let’s take on a few more current examples. Here is bonds TLT:

tlt

Bullish energy (green) disappeared in late August 2016, and bonds dropped. A bottom fishing chance in mid September gave a brief rally, but a lot of ice told us the market stayed very cold. New bottom fishing chances (and 2x salmon) led to an even weaker reaction. The market painted a first iceberg in late October, a strong warning sign. Then bonds dropped quickly, giving us a period of open water and more “fish”. In early 2017 we reached icy land and there we got “gold on the beach” for the first time. This was after a period of open water, so it suggested more “gold on the mountains” (= higher highs) coming up. But subsequent rally attempts were too weak, with bullish energy (green) not getting above 4 and being too short-lived. In mid March we got another bottom fishing chance. A few weeks later we saw bullish “gold on the beach” again. The green mountain got above 4 soon and then we found “gold on the mountain” in mid April as bonds reached a first peak. Bullish energy sputtered a bit there but didn’t go away and led to a couple more peaks with “gold on the mountain”. Notice how the gold in late June was lower than on the previous occasions, that’s a kind of bearish divergence but not necessarily the end of the move. Bullish energy has not gone away and is back above 4 again, so there may be more to come. If bullish energy disappears then our outlook would change.

Here is the current icebergs for Nasdaq:

nas

Bullish energy disappeared in Oct-Nov 2016 and the market went through a major pullback. In late November we saw a great example of “gold in the water”. At that moment we didn’t know if that was bullish or bearish. A few significant down days followed, but then bullish energy came back fairly quickly. As the gold in the water was closer to the new mountain than to the old one we could suspect gold on the mountain was coming up next. A period of “lava” in early 2017 proved insignificant and we had an ongoing green mountain with gold appearing on several occasions. We only got sideways or brief pullback after each episode of gold on the mountain, which is quite typical in ongoing bull moves. Note how the gold in early June was visibly lower than the gold in early May. This bearish divergence led up to a more serious correction in late June. But the market held on and bullish energy returned in mid July. The problem is that bullish energy did not get back above 4 and now we see “gold on the beach” after a mountain. That’s a dangerous omen and would be “cured” only if bullish energy (green) gets back above 4. If an iceberg gets painted next it would be another strong sign to get out.
Note that there is no floating ice and no “fish” in this chart. If we get a correction I would expect to see floating ice and/or fish near the lows.

This type of bearish gold on the beach is rather rare. Here is the previous occurrence for Nasdaq:

nas2

We see the gold falling away towards the beach with the market at new highs after a long advance with continuous mountain. The market subsequently dropped 10% in 6 weeks. A few observations here. The market did make a final brief rally to new highs in early March, when bullish energy was gone already. That cannot be ruled out. Fish appeared nicely at the lows in mid April, giving a great re-entry point for traders. And even conservative investors who waited for green to get back above 4 would have bought back in late May as the index climbed back above 4150. Not bad.

As a final chart I will take weekly EURUSD:

eurusd

I will give no comments on this one so you can just try to read it for yourself.

I do intend to post more icebergs charts on my Twitter and here on the blog whenever there is something interesting, so just stay tuned. If you have questions, just post them in the comments.

Posted in Market Commentary | Tagged: , , | 8 Comments »

LT wave for August

Posted by Danny on August 1, 2017

US markets have reached new record highs. Hurray! Or, last hurray?? S&P 500 and Nasdaq have done exactly what I expected to happen per my recent posts: Ready for 2500 and Show Time. The S&P 500 is stalling just below 2500, and Nasdaq has climbed to 6400 but seems to encounter air pockets up there. A few weeks ago I said that kind of price action would be a sign of weakness. Let’s see how that looks like in the current chart:

^SP500 (Daily) 10_16_2015 - 7_31_2017

The same drawing I posted on July 11, with the S&P now moving nicely into the projected blue target circle. That’s not the product of some magical crystal ball I have, but merely linear interpolation of the recent trends. That obvious trend will stop eventually and the big question is when and where. My Earl indicator has turned down already, and the slower Earl2 has all but negated the recent rally. That’s what I warned for and this is a reason to be very cautious at this point. It looks weak but as long as no trend lines are broken things are holding up. How much longer? I don’t know. All we can do is watch and be ready.

The LT wave did a fair job in July and here is the wave for August:

ltwaveAug2017

Expected weakness until around the 20th proved much more short-lived. The S&P 500 bottomed on the first expected low near the 8th and then climbed steadily into the expected highs around the 26th. Intra-day peak came on the 27th, no perfection in this world…
For August the wave suggests weakness until around the 15th, followed by an unusually strong period until the 25th. The lowest LT wave value comes on the 10th and then goes to a very high LT wave reading on the 23rd. If the S&P gets through the weak period without technical damage then a major high may be seen on 23rd (+/- 1 day). If we get a significant drop first then 23rd is more likely to become a rebound high in an ongoing decline. That are the two major scenarios I would consider at this point. As always, please remember the LT wave is experimental and will not always work perfectly.

I also want to revisit my June post: Get ready for the August eclipse. As expected, news media and astrologers are getting very excited about this event, e.g. this Newsweek article: http://www.newsweek.com/total-solar-eclipse-trump-astrology-prediction-643776. Basically, if anything serious happens to the US or its president in the next two years then astrologers will conveniently blame it on this eclipse and take it as proof that their methods work. Question: and when was the last time nothing significant happened over a two year period?
Don’t get blinded by this eclipse, I would rather keep an eye on the 1987 chart comparison I posted. The recent 6 weeks price action has continued to be exceptionally similar. Here is a more detailed comparison chart updated for July:

spx_vs_1987

History doesn’t repeat, but sometimes it rhymes. As far as direct year to year comparisons go this is as good a rhyme as you will ever see. The rates of change differ, but the important highs and lows keep matching well. At some point the rhyming will stop, but we don’t know when. An S&P surge above 2500 in August, with breakout above the blue line, would make the historic comparison even more compelling. A similar October crash, taking into account the differing rates of change, would then target 2150 (= the 2015 highs).
I never have more than 60% confidence in any scenario, including this one. But I am keeping an eye on it.

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

Outlook for week of July 31

Posted by Danny on July 30, 2017

Outlook for world markets with brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

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

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. Comes as a daily html file covering over 2700 stocks and ETF. To see what you get you can pick up recent free samples on this page. Instructions for use are included. Give it a try.

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

Why the VIX is so low and why you shouldn’t worry about it yet

Posted by Danny on July 26, 2017

Markets have worked themselves to new record highs and almost everybody is talking about the VIX index staying below 10 for so long with no signs of wanting to go up anytime soon. This move to new records has come right on time per our LT wave for July, but more on that in my next weekend post when I will also put out the wave for August.

Long term readers of this blog may know that I consider the VIX an indicator with little or no predictive value, as per this post from 2015: Forget the VIX…. Back then traders were also worried about the VIX being too low, but they would wait another 6 months to get any correction worth talking about and by now we are two years later and 30% higher on the Nasdaq.

So why is the VIX so low again? The answer is the same as in 2015: because volatility has been very low in recent months and weeks. Just how low? Well, I use a very simple measure of volatility: the 50 day (or week) average of the True Range expressed as a percentage of the index (or stock price). I call this “ATR%”. Contrary to the classic ATR the ATR% makes it easy to compare current volatility to earlier periods when the stock or index traded at much lower/higher values.

As of y’day the daily ATR% for the S&P 500 dropped to 0.584, it’s lowest level in more than 23 years and only just above the all time low of 0.566 (Jan 1994). This volatility measure may drop to new record lows if markets stay this calm for a couple more days:

sp_atr_d

The weekly ATR% has also dropped to a very low level of 1.675, which is a 21 year low.

sp_atr_w

With both daily and weekly ATR% at more than 20 year lows we have a VIX at very low levels too. The VIX is simply predicting the recent past.

And there is more. The S&P 500 hasn’t seen a 2% down week since September 9, 2016. That’s 45 weeks without a move that hurts at least a little bit. Such +40 week episodes have been very rare. I have counted only 8 of them since 1950 for the S&P 500, and another 2 of them if we consider the Dow Industrials from 1900-1950. Here is the complete list:

downweeks

As you can see, most of those “painless” episodes have come during the long post-WW2 bull market, which ended in the early 70s. The longest painless period still stands at 90 weeks and ended in September 1959. Since the early 70s we have seen only two such 40+ week periods, in 1994 and 1996. And now we are in the third one. The table also shows you what happens after such a 40+ week period comes to end (obviously when the S&P has a >2% down week again). I have calculated the market returns in the subsequent 4 weeks, 12 weeks, 24 weeks, 52 weeks and you can see the results in the right side columns. Contrary to what most traders might expect, that first >2% down week after a long painless period is usually not the beginning of a bigger crash. Far more often than not the market does very well in the next 4 to 12 weeks. The average gain 4 weeks after that first >2% weekly decline is 2.6% and the average gain after 12 weeks is 3.3%. Both are higher than the average 0.65% and 1.95% gains we have historically seen over 4 and 12 week periods.
Looking at 24 weeks we have an average 3.2% gain (versus 3.95% in all periods), so 6 months after that first >2% weekly drop we see an underperformance for the first time. And after 52 weeks we see an average 10% gain (versus 8.7% normally). This is better than average , but this comes on the back of two large gains in 1954-5 and 1996, when there was an annual gain of 30% and 26% respectively. The other 6 painless periods produced weak or average 1 year performance after they ended. But none of those periods ended with a serious crash in the next 12 months. That doesn’t mean it cannot happen of course. But based on those historic examples, the next >2% down week will not be a reason to panic but rather a short term buying opportunity. And that’s why we shouldn’t worry too much about this low VIX yet.

Going back to the ATR% charts I showed earlier on, we can also look how this indicator did on earlier occasions when it was unusually low. Here is the S&P 500 daily ATR% on its all time low in January 1994:

sp_atr_d2

Even though the market did get a 10% correction soon after the record low ATR% on Jan 21st, it climbed to news first in early February on a higher ATR%. And that brief 10% correction gave way to a massive multi-year advance, so that ultra-low volatility (ATR%) was only a short term selling opportunity here.

In early 2007 the daily ATR% again reached ultra-low levels. This is what happened next:

sp_atr_d3

The ATR% was very low for months, reaching a low of 0.68 in February. There was a brief pullback, but a significant bear market was still months away and there were two strong rallies before the big decline started.

The same thing was observed near the 2015 highs. The daily ATR% bottomed in summer 2014, but markets kept climbing until May 2015 before a real correction started (see first chart of this post)

Looking at the weekly ATR% in 2006-2007 we see something similar:

sp_atr_w2

Low ATR% values were reached in early 2006, but that only led to a minor pullback a few months later. Even lower weekly ATR% was seen in Feb 2007 (low of 1.74), but the market would go on to climb to higher peaks without setting new lows in ATR%. The eventual decline started more than 6 months after the ATR% low.

Bottom line: what we see is that bear markets usually do not start from record low volatility levels. The common pattern in major market advances is that a period of very low volatility gives way to higher volatility while the markets keep setting new highs. Some market participants get more nervous in the final stages and that shows as a higher ATR% in the final weeks/months of a long bull market. The real decline usually starts when a long term trendline gives way, as you can see in some of the charts.

PS: If you want to try the ATR% indicator on others indexes or stocks then you can use my script on TradingView: https://www.tradingview.com/script/GXlziRv4-ATR/. It’s also an easy way to see how the ATR% evolves after the posting of this article.

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Outlook for week of July 24

Posted by Danny on July 23, 2017

Outlook for world markets with brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

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

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. Comes as a daily html file covering over 2700 stocks and ETF. To see what you get you can pick up recent free samples on this page. Instructions for use are included. Give it a try.

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

Show Time

Posted by Danny on July 17, 2017

The S&P 500 has broken out to new record highs, nicely in line with what we shared last week. But the Nasdaq index has not made it to new highs yet. Here is the current chart:

^COMP (Daily) 10_13_2015 - 7_14_2017

The Earl and MoM indicators are clearly going up, with no signs of topping out yet. But the slower Earl2 (orange line) is merely flatlining below the zero line, which is exactly what I warned for in last week’s post. We need to watch carefully what happens in the next week or two. If the markets just chop around with S&P 500 stalling below 2500 and Nasdaq staying near the 6400 level, then it would indicate a very weak market with little or no fuel left. Then the Earl2 would probably continue to negate the new highs and that would be an ugly setup heading into August-September. See late September 2016 for a recent example of such an Earl2 non-confirmation. Stocks climbed to marginal new highs after a pullback, but the Earl2 stayed very weak below the zero line. A more significant second dip followed suit.

A more vigorous advance with S&P climbing above 2500 would reduce this concern. So it is show time.

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

 
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