LunaticTrader

Investing with the Moon

Hesitating to go higher

Posted by Danny on January 18, 2017

The S&P 500 keeps going sideways while the Nasdaq is setting a string of new all time highs. The market is probably trying to make up its mind here, burst higher or start a correction? The first lunar red period of the year ended with a 191 point gain for the Nasdaq, see Performance. The cycle inversion we have been seeing last year just seems to continue. I will do a special post soon on why and when normal lunar cycles may return. Stay tuned.
Let’s have a look at the current Nasdaq chart:

comp-daily-5_5_2015-1_17_2017

The Nasdaq has taken another swing higher, but warning signs remain. The Earl (blue line) is turning down with a bearish divergence in place. The slower Earl2 (orange line) has not done anything and still shows a top in place. The MoM indicator is also turning back down after another visit to the +8 zone. Not the kind of setup I want to buy, so I would just stay patient here.
We are starting a new lunar green period, but if the cycle inversion carries on then that is not a plus. The LT wave for January suggests a peak near the 17th followed by increasing weakness for the remainder of the month. We will soon find out if that projection holds up.

There is no reason for instant panic, but the setup doesn’t look great and I am getting a lot of partial profits and sell signals in my reversal levels method. So, I would be careful until the sky clears and take some profits in positions that have grown too large. Most indexes keep bumping into overhead resistance and without a strong catalyst they will probably not succeed to climb much further in the short term.

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

Outlook for Week of January 16

Posted by Danny on January 15, 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 Dow 20k matters

Posted by Danny on January 10, 2017

Stocks have been trading rather flat in recent weeks, and several attempts for the Dow to get above the 20k milestone have come up short. More on that later in this article. First, let’s have a look at the current situation in the S&P 500:

sp500-daily-4_24_2015-1_9_2017

A few weeks ago we observed how stocks needed to catch some breath, giving indicators the time to revert from rather overbought levels. We now see that the faster Earl (blue line) has bottomed out and turned up already and the MoM is back to neutral levels. The slower Earl2 (orange line) is still headed lower and nowhere near a bottom.
The bearish divergence remains in place and an index making new all time highs with Earl below the zero line is a tricky setup. The overhead resistance levels are still putting a ceiling above this market and it appears as if momentum is not strong enough to push much higher at this moment.

***

When and how the Dow gets above the 20k mark is widely watched and is determining the near term price action right now. Much like an athlete would do if he has failed to clear a hurdle, this market may need to take a few steps back before it can try to get over on the next attempt.
Some observers contend that Dow 20k is not really relevant. That may be true from a long term investor’s point of view, but most of the daily market volume is coming from short and medium term traders, not from long term investors. And for them it matters. Why?

It is human nature to try to simplify things when faced with something as complex as a stock market. That’s why investors tend to use round numbers as reference points and mental stop or target prices. An investor who has bought a stock at $67 and sees it climb to $76 may tell his wife that he is going to take some profits when it hits $80. That’s easier to remember than $81.27. This simplification in traders’ minds creates a “round number effect”. Options being priced at round numbers contributes to that effect as well. There is also the known psychological phenomenon that makes a $19.99 product look cheaper than a similar item priced at $20.00. This “left digit” effect in combination with “round numbers” effect makes for psychological barriers in widely watched stock indexes like the Dow Jones. Some common patterns can be observed when an index heads into a major round number. We can see the most typical price action in this S&P 500 chart from 2014, when the index climbed above 2k for the first time.

spx2000

The first variation is: coming up just short and falling back. That’s what we saw in July 2014. The reason for this is simple. There are always some traders who have decided to sell some if market hits 2000 and they put their sell orders just below that mark. Other short term traders who anticipate that behavior add some sell orders just below 2000 as well, just hoping to benefit from an expected pullback. This supply coming in just below the round number causes the pullback.
The second variation is: crossing above, but not able to hold up there (= fear of height sets in). That’s what we saw in Aug-Sep 2014. The hurdle was cleared but the market never got properly away from the 2000 level. This is left digit effect. Traders’ minds need some time to get used to see “2” in front. Failing to get away from 2000 was followed by another pullback.
In Nov 2014 the market got back above 2000 again and then it got away from it. Subsequent pullbacks retested the 2000 level, which acted as strong support, very typical price action after a breakout.

Of course, things do not always evolve in this exact fashion. If a market has a lot of “juice” left when coming into a round number barrier then it will often cut straight through without looking back. There are sell orders just below the round number, but they are easily absorbed and the market moves on.
If on the other hand the market is rather tired and momentum is fairly weak, then the predictable sell orders sitting just below the round number will stop the advance. And when that becomes clear more investors may decide to sell. It becomes a self-fulfilling prophecy at that point.
And with each new failed attempt at a psychological barrier it becomes more visible for investors. It can go on for years and become a market obsession. That’s how the Dow ended up taking more than 15 years to get above and away from the 1000 level in 1965-82. That’s how the FTSE 100 has been spending the last 16 years trying to get above and away from 7k.
Will it take that long to get above and away from Dow 20k? We don’t know. But if the Dow happens to struggle for weeks at that level, then weeks become months and eventually months can become years. A big round number is not a strong psychological barrier on the first attempt to clear it. But it comes a stronger and more visible barrier with each new failed attempt. If and how the Dow gets above 20k will probably tell us how much “fuel” is left in this market and that is an important takeaway.

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

Outlook for Week of January 9

Posted by Danny on January 8, 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 »

LT wave for January

Posted by Danny on January 3, 2017

Stocks had rather flat end of year trading with some weakness surfacing in the final days of December. The lunar green period produced a 54 point loss in the Nasdaq, a fitting close to a year which has been difficult for lunar cycle trading. More on possible reasons for this bad year and when “normal” cycles may return in a later article. Let’s first have a look at the current Nasdaq chart:

comp-daily-5_21_2015-12_30_2016

As I reported a few weeks ago, my indicators appeared stretched and a choppy ending to the year would be healthier than an ongoing surge to new highs. All my indicators are now coming down, including the slower Earl2 (orange line). This means the overbought situation is slowly getting worked off. But none of the indicators is showing any signs of bottoming out at the moment, so I would be patient here. Chances are we will see further downside action before we get an attractive setup to enter new longs.
We are also starting a new lunar red period and perhaps we are due for a normal cycle. The technical setup looks right for it. If we do get an early new year drop then Nasdaq 5250 becomes first target and just above 5000 if things turn ugly.

The LT wave for January also points to early weakness:

ltwavejan2017

The wave for December did OK, not perfect. The expected weakness in the 2nd week did not pan out, but the neutral/flat trading for the rest of the month came true. Highs in the S&P came close to noticeable peaks in the LT wave on the 12th and 20th.
For January the wave projects weakness in the first week with a low value on the 4th. Then a strong period from around the 11th until 21st with a major peak value on the 17th. Last 10 days of the month are weaker again.
As always, don’t bet the bank on this. The LT wave is purely based on natural cycles and doesn’t use any market inputs.

As a final extra I want to point to the number of bullish stocks in the S&P 500. This is a chart I also post on Twitter from time to time, e.g. Dec 7. In a healthy bull market the number of S&P 500 stocks in bullish mode (based on my reversal levels method) is well above 250 (50%). In the beginning stages of a market advance the number of bullish stocks normally goes above 400 (80%) and stays above 300 during minor pullbacks. Once the number of bullish stocks drops back below 300 a deeper correction could be starting. This is the current situation:

spx

The number of bullish stocks did climb above 400 on Dec 12, but has since come back down and is now at 278. This means a lot of stocks and sectors are already quite bearish and only a small majority of stocks remains in bullish mode. Maybe this is just year end profit taking… Or the market is about to turn lower. We will find out soon.

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

Outlook for Week of January 2

Posted by Danny on January 2, 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: , , | 2 Comments »

Outlook for Week of December 26

Posted by Danny on December 26, 2016

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 »

Getting to Dow 20k

Posted by Danny on December 19, 2016

Markets had a fairly flat week and a few attempts to push the Dow above 20k have come up short. The recent lunar red period ended with a 181 point gain for the Nasdaq and we are now starting a new green period. That would normally get us above 20k, but the green periods have been weak all year so that isn’t helping much. Let’s have a look at the S&P 500:

sp500-daily-4_10_2015-12_16_2016

This index is bumping into a few overhead resistance lines. There is also a bearish divergence appearing in my Earl indicator (blue line), which is an early warning sign. The slower Earl2 (orange line) keeps going up, but may be nearing a top as well. The MoM indicator is still in the +8 very optimistic zone.
All in all the lunar green period and the slower year-end trading could be enough to push the S&P to 2300 and the Dow above 20k. But that is not a given and would probably be followed by a slow start in 2017.
A choppy market for the rest of the year would be healthier. Stocks could catch some breath and that would give us a nice setup going into January.
I don’t know what will happen, but with most of my indicators looking rather stretched I am going to trade cautiously until those readings come down to more neutral levels.

Posted in Market Commentary | Leave a Comment »

Outlook for Week of December 19

Posted by Danny on December 18, 2016

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 »

Dow 32000 revisited

Posted by Danny on December 12, 2016

In August 2013 I posted an article with long term price projections for the Dow Industrials based on a remarkable price symmetry since the 1932 depression lows: The case for Dow 32000
The article called for a major peak near 32000 or 19410 by late 2016 or early 2017. So here we are in late 2016 and the Dow has just reached that minimum target of 19400 last week. This is the perfect time to update those projection charts and have a little look what could be up next.

In my article I mentioned 3 conditions that would need to be met for the Dow 32k scenario to remain in play. The market was just having a bit of a pullback after climbing above 15k for the first time, and there was plenty of talk that the top was in and the market would crash. This were the 3 conditions:

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.

The first condition was met easily as the pullback was short and shallow with a bottom near 14700 before climbing to new records in 2014 and 2015.
The third condition was also met as the Dow nicely climbed above 17000 in the summer of 2014.
But the second condition, leaving the green overhead resistance behind, did not pan out as can be seen in this chart:

djia-monthly-10_1984-12_2016

And that’s how we did not get to 32k, but we have reached the lower peak target of 19400. Does that mean the top is now in and we can bet on a crash? Well, not so quick. The possibility exists that the market is starting its final ascent and may reach the 30k-32k in an 8 to 12 month blow-off peak. We still don’t see massive investor euphoria and if the Dow climbs to the upper bound of its trend channel since the 2009 lows (dashed grey lines) then it could get there. The pink ellipse shows the projected target area in this scenario.

I will go to S&P 500 charts to study how such a final surge might play out. This is the current situation with major trend lines drawn in:

sp500-monthly-10_1999-12_2016

The S&P is clearing one of the last overhead hurdles near 2250 (green line) and if it decisively breaks through that level then the door will be open for a climb to the upper bound of its trend channel since 2009 (blue lines). In fact, neither the Brexit nor the US election fears pulled the market back to the lower trend long term trend line (blue), which supports the case for such a surge. The S&P is already following a steeper rate of advance (given by the dashed grey line) since early 2016. If it keeps this up for another 8 to 12 months the S&P will be in the 2600-3000 zone. This is the same rate of change it kept going for more than 3 years in 2012-14. If it keeps it up for another year then the S&P would be in the 3000-3200 area. Both target zones are shown with pink circles in the chart and appear doable.
This analysis helps us to see what it will take for this scenario to stay on the table. S&P will need to break above the green line quickly and then go on to 2500-2600 fairly soon, probably before summer 2017. Then a final autumn autumn moonshot could take it to near 3000, which would become an obvious attractor at some point.
We can also see what would invalidate this setup. Any decline below 2000 in 2017 would tell us the long term advance since 2009 has ended and that would definitely take the quick surge scenario off the table. Any sustained drop below the dashed grey line, currently near 2100, would already suggest this scenario is not making it. So, that are the lines in the sand that I am going to watch carefully.

If we do get a surge to 2600+ next year then it is likely to be followed by a steep decline in 2018-21. This is what would become my base scenario after such a blow-off peak:

sp500-monthly-9_2004-12_2016

Major long term support will be in the 1500-1700 area in the early 2020s, so that would become an important target if there is a crash or bear market.

What are the odds of this coming true? I think there is currently about 20% chance to get this kind of runaway market in 2017, and the odds would go to 40% if the S&P gets above 2300 quickly and keeps climbing in January – February.

***

Let’s finish with a look at the shorter term Nasdaq chart:

comp-daily-4_17_2015-12_9_2016

New records with the Nasdaq breaking above 5400 after earlier hesitation at that level. All indicators are pointing up with further room to rise. No signs of a peak. All we can do is go with the flow.

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

 
%d bloggers like this: