Posted by Danny on November 5, 2012
Our lunar Red period has just ended and recorded a 90 point decline on the Nasdaq.
This is the most bearish Red period so far this year, and confirms that the path of least resistance is down for the moment.
Most stock indices sit right on important support levels now, so the question going forward is whether the markets can rally in our new Green period over the coming weeks.
Let’s have a look at the S&P 500 chart (click for larger image):
The recent decline has not altered the picture for this market. As long as the S&P holds above 1390, we are set for a rally to 1470, with the possibility of going on to 1500.
If the 1390 level is broken to the downside, then I would look for a further decline towards the 1200 level.
How the market acts in the current Green period, will once again give us good clues.
The risk for further declines is very real, as my Earl2 indicator is not showing any signs of bottoming yet (red indicator in the chart).. That would probably change if the market rallies over the next two weeks, but that remains to be seen of course.
As chart of the week we take a look at Wheat prices (click for larger image):
Wheat prices have gone up significantly over summer and have since consolidated near the highs. Here we see how my Earl2 indicator has already turned upwards from its lows, which means Wheat is in a position to rally again. It can go as high as 1100 if it can break out of the narrow triangle.
So, can be bought with a stop-loss around 830. Risking 35 with the chance of gaining 200 is not a bad risk-reward ratio.
Good luck, Danny