LunaticTrader

Stock markets are stagnating just below their recent record highs. The Nasdaq gained 89 points in the recent lunar red period, which is the best performance in a red period since early February. Is this the start of another major rally? Or just a fake-out before a significant decline? It is hard to tell right now. Here is the current Nasdaq chart:

Since our previous review of Nasdaq the bearish scenario has been avoided and the long term up trend line (blue) has held. The odds of a continuing bull market have gone up, but we still don’t see a sustained breakout above 6400. So, it’s too early to bury the bearish scenario.

We are starting a new lunar green period and our LT wave for September is positive for the coming weeks. But my Earl indicator has turned down with the MoM also stagnating at high level. So, I don’t know what will happen next. Something has got to give… Another rally to new highs is certainly feasible. But a downturn with sudden acceleration on break below 6200 is equally likely. We may even see the “path of max confusion” with major indexes eking out new highs for a day or two before turning down rather sharply. I would just wait for the inevitable breakout (up or down) and keep my powder dry until the uncertainty starts clearing.

As chart of the week I have chosen a monthly EURUSD chart:

The Euro has been in a long term down trend (blue channel) since 2008. We see a strong rebound since the beginning of 2017, but now the Euro is bumping into the 1.20 zone, which has been a major support-resistance level for almost 20 years. I would not expect the Euro to break above this major resistance level on its first attempt. A peak as high as 1.22 or 1.23 is possible, but I would look for a significant pullback before the Euro can possibly break higher in 2018 or later. A multi-month pause may be up next, but I think a pullback to 1.12 is the base scenario for now. What could cause the Euro to weaken versus the $US? I think the upcoming “quantitative squeezing” is a prime candidate. If the Fed starts reducing their balance sheet, as they already announced, then it will make US$ more scarce. Simple supply and demand would then push the $ higher, especially if other central banks are waiting with this QS step. I plan to do an article on this “quantitative squeezing” and what consequences it will have for stocks and bonds. The EURUSD chart is something we will have to keep an eye on.