Will buyers appear?

Markets continued to march higher last week, but turned down on Friday, which was the first day of our lunar Red period.
It looks like there will be more selling today, as stock markets around the world react nervously to the news of the proposed bailout terms in Cyprus.
That story sets a precedent and could have long term consequences. Who will want to keep any serious money in euros in EU banks, after seeing what happens overnight to our friends in Cyprus?
This could create a sizable flow of funds out of Europe and into dollars, gold, international stocks, …

Let’s have a look at the Nasdaq (click for larger image):


The Nasdaq has reached the 3250 target we set a few weeks ago, and is bumping into overhead resistance.
We put out the Sell signal on our Twitter account last Thursday: http://t.co/TcEMklydm8
I am planning on sharing important charts and buy or sell setups on Twitter from time to time, so feel welcome to follow our account if you want to receive them.

Where do we go next? A close below 3200 on Nasdaq would be a sign that the market has indeed turned down.
But it remains to be seen how many buyers emerge after we get a few down days. Plenty of investors have missed out on the rally and are still waiting for a good chance to get in. If they outnumber the selling from investors who decide to take profits, then the market could turn back up quickly.
For now, I would expect the market to drop to 3100 by April or May. But, we may not get that low if buyers appear quickly.


As chart of the week I want to take a look at gold stocks, XAU index (click for larger image):

gold stocks

Since we recommended to get out of gold in early February, gold stocks have taken a nosedive.
The arc formation shows the selling climax that has taken place.
Currently the XAU index seems to have found support around the 130 level, and downward pressure from the arc formation is behind us. Meanwhile the Earl2 indicator shows a broad bullish divergence and this means we can start doing some careful buying here. There could be one more leg down towards 120, so a good approach is to buy some now, and buy some more on the next pullback or on a break above 142.
I would look for XAU to rise to 175 once it gets back above 142. So, that’s a nice 30% upside potential.

Good luck,


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By Dan

Author of LunaticTrader and Reversal Levels method. Stock market forecasts based on proprietary indicators, seasonal patterns and moon cycles.

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