Key levels for next week
Posted by Danny on June 8, 2013
As a follow up to the key levels we posted a few days ago, here they are going into the next week.
Notice how the Nasdaq has closed above its daily key level yesterday and is now in rally mode again. The S&P 500 closed just a few points below its daily key level and thus still needs a higher close to get into rally mode as well.
The Euro has closed above its weekly key level and has now gone into bull market status.
|Status||Key (W)||Mode||Key (D)|
|Nasdaq||BULL||S: 3221||RALLY *||S: 3419|
|S&P 500||BULL||S: 1534||DECLINE||R: 1644|
|Gold (spot)||BEAR||R: 1555||DECLINE||R: 1422|
|Euro/US$||BULL *||S: 1.2921||RALLY||S: 1.2963|
|Crude Oil(CL)||BULL||S: 90.95||RALLY||S: 92.94|
(Legend: W = weekly, D = daily, R = resistance, S = support, * = change from previous week/day)
Some quick explanation.
First you see the market’s longer term “Status”, which is BULL when the given market is above its weekly key, or BEAR when it is below its weekly key. Next to it you see the weekly key level (can be “R” – resistance or “S” – support). A weekly close above support or below resistance is what is needed to alter the Status from bull to bear or vice versa.
Then you have the market’s shorter term “Mode”. If the given market is above its daily key, then it is in RALLY mode, otherwise it is in DECLINE mode. In the last column you see the daily key level, which needs to be broken on a closing basis to affect a change in Mode.
The basic idea is to enter the market when it changes Status or Mode, and then keep using a stop-loss at the mentioned key level. If the market turns against you, then you will be out for a small loss. If the market follows through in the right direction, then the key level will move up (or down for shorts) with it and soon start locking in profits.
For example, gold is currently in a bear market and remains in declining mode, but a daily close above $1422 would put it in rally mode, and a weekly close above $1555 would change its status to bull market. So, a shorter term trader would wait for a close above $1422 to go long and a longer term investor would go long only on a weekly close above $1555. Notice that this system does not get you in at the bottom, but it also does not have you trying to catch falling knives. It just tries to get in for the bulk of a move, capturing the safest part of the potential profits. Every week these key levels get recalculated, so eventually we get changes in status and in mode. The daily key levels change every day, but normally not very fast. For now I will not post them daily, but try to get them out every week.
This method is useful in a number of ways, for example in combination with our lunar cycles system. While the stocks market tends to do much better in the lunar green periods than in the red periods, it is generally not profitable to short the market in red periods. Shorting the red periods has a good risk/reward ratio only in bear markets. So, that’s where these key levels can come in. Trading when both the trend and the lunar cycles are in agreement is a good recipe for a high percentage of winning trades, while avoiding major losses by using a stop-loss at these key levels.
More to come.