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):
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):
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.