Even though we got the rally we expected last week, the market gave back its gain on Friday. So, the recent lunar Green Period ended with a small loss, once again signalling weakness ahead.
This means we have to be careful in the lunar Red Period that is getting underway.
A quick look at the current chart for the S&P 500 (click for larger image):
The S&P briefly logged a 2 month high last Thursday, but swiftly fell back. My Earl momentum indicator is showing a bearish divergence and we just enter lunar Red Period. Doesn’t look good.
If the S&P 500 drops below 1350 in the coming weeks, then we will quickly see 1300, and if that level doesn’t hold then a one year uptrend would be history and we could see panic selling. So be careful and buy some protection for your portfolio.
As a new feature to make the blog a bit more interesting, I will try to include a “chart of the week” from time to time.
For this week I have an interesting long term weekly chart for the Euro-US$ (click for larger image):
Since 2004 the Euro is holding above major support just below 1.20, and the action neatly fits in a circular pattern, with plenty of touches in the recent years, showing an accelerating downtrend.
This pattern is going to resolve within the next couple of weeks:
1) The market could drop below 1.18, which would be a major long term sell signal for the Euro, with next target 1.00 and even 0.80. But if the Euro immediately rebounds from a drop below 1.18, then you should buy.
2) If the Euro rises out of the blue circle area, then it would end this pattern and would be a buy signal.
Something is going to happen here, and it is likely to happen within the next month or so.
Even though most traders are very negative about the Euro right now (for obvious reasons), my momentum indicators suggest that we are seeing a bottom now, and a surprise move to upside is in the cards. But we have to keep a stop-loss somewhere below 1.18
Good luck, Danny