LunaticTrader

Investing with the Moon

How to play the correction

Posted by Danny on April 22, 2013

The market correction has come right on the mark with the eclipse Red period we discussed last week.
It also confirms that our LT Wave remains on track.
We have another week of Red period to go. Can we expect more downside already?

Here is the current chart for the S&P 500 (click for larger image):

S&P

The S&P has now dropped out of the trend channel that started last November. That’s a significant development, and means that the market will now need to establish a new support level.
The S&P is currently clinging to the 1550 level, where we have some support.
And I think this could provide us with some sideways movement for a week or two.
But May shows us up weak in all of my models, so I think we will eventually go lower by the end of May.
As marked in the chart, the 1480 level will become the next important support level, and that’s my current target.

Does this mean we have a classic “Sell in May and go away” year?
I don’t think so. I expect a “buy in May” opportunity, with the market climbing back to retest the 1600 level by summer.

For people who follow Apple (AAPL) shares, check out this chart if you missed it: http://t.co/C4iwZXsfr4

***

As chart of the week I have chosen the gold stock XAU index. (click for larger image):

XAU weekly

This index has fallen to the 100 level, which is not only a round number, but also a major support level, as you can see in this chart. These parallel trend lines have all offered major support and resistance on numerous occasions.
It also indicates the current low in gold stocks matches the 2008 bottom.
This means there is a good chance that gold stocks will produce some nice pullback from here, even if gold itself remains stuck in the $1300-1440 zone.

Good luck,
Danny

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6 Responses to “How to play the correction”

  1. marlowe said

    Danny,

    I’ve looked at your solar flare monitor occasionally, but today is the first time I’ve checked it several times. I’ve seen a range of !4% to 59%, dropping over 40 % in an hour. Is it normal to fluctuate this much? If not, how rare is it?

    Also, your 1440 top range on gold looks solid. Being long gold, I fear we test your 1300 soon. Was interesting to see gold spike on the Fake Tweet.

    • Danny said

      Hi Marlowe, the risk for solar flares depends a lot on the type of sunspots, which you can see indicated as class (CLS) in the little table in the monitor. For some types sunspot area an explosion is imminent and then the solar flare risk jumps up. This doesn’t happen every day, it depends on how active the solar cycle is, and is also more common near the peak of the cycle.

      The 1440 level seems to be capping the price action in gold for the moment. On a serious break above that level (e.g. by closing at 1450) that would turn into a support level, but if that doesn’t happen fairly soon, then look for a retest of the bottom in the coming weeks or month.
      This is a chart I tweeted a few months ago, pointing to possible low in mid June. This may still come to pass: http://t.co/pfnfYPAEOv

      • marlowe said

        We got your quick 1450 close, but miners lagging. Gld +2.4%; Gdx +1.2%. Weekly close above 1450 with miners leading will impress me, but doesn’t seem like we got a full flush of longs needed for a lasting rally. Hope you follow up your 4/16 post if your thinking significantly changes.

      • Danny said

        We should now consider 1440 the support level, with 1525 (old support level) being major resistance. If gold falls back below 1440 it will point to a retest of the lows. If it breaks out above 1525, then you can set sights on 1600 next.
        The XAU is up to 110, which is 10% vs last week. Not too bad, but I would also like to see the gold stocks lead the price of gold, as that has usually been a good omen in the past. As long as that’s not the case there is reason to doubt the current rebound in gold prices.

  2. Hi Danny,

    There was an interesting correlation yesterday (24 Apr) between the coronal hole behavior and the MtGox Bitcoin pricing (which has a handy 24/7 worldwide dynamic chart). Do your models account for any difference between say a CME (coronal mass ejection) effect and a coronal hole effect on investor behavior?

    • Danny said

      Hi Lou. The CME is what gives us high solar wind and geomagnetic storms, and the effect of these storms on investors/stocks market was covered in a Fed study, see: https://lunatictrader.com/?Geomagnetic_Storms
      Whether coronal holes as such have a similar influence is not known to me. I do know that Piers Corbyn (http://www.weatheraction.com/) considers the coronal holes in his climate forecasting work.

      I think “investor behavior” and “speculator behavior” can be two rather different things. Speculators get in and out more quickly than investors, and so they may get out at the first signs of trouble. That could make markets that are in highly volatile speculative mode (as Bitcoin currently is) more sensitive to things like coronal holes, eclipses and geomag storms.
      But of course, we cannot make any conclusions based on one day’s “correlation”. It takes longer term observations..

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