LunaticTrader

Investing with the Moon

Key reversal levels for week of September 2, 2013

Posted by Danny on September 1, 2013

Our key reversal levels going into next week:

Current Status Key (W) MoM (W) Mode Key (D) MoM (D)
Nasdaq 3590 BULL S: 3410 6.69 (7.47) DECLINE * R: 3635 -1.62 (-1.39)
S&P 500 1633 BULL S: 1595 3.79 (4.96) DECLINE R: 1667.20 -5.82 (-5.72)
Nikkei 13389 BULL S: 12634 1.33 (2.12) DECLINE R: 13844 -2.85 (-2.98)
FTSE 100 6413 BULL S: 6313 1.79 (2.12) DECLINE R: 6543 -3.17 (-3.61)
DAX 8103 BULL S: 7999 2.42 (2.73) DECLINE * R: 8322 -2.99 (-1.78)
Bonds (TLT) 105.99 BEAR R: 112.48 -6.73 (-7.0) RALLY * S: 104.64 1.26 (-0.19)
Gold (spot) 1394.8 BEAR R: 1431 -0.93 (-2.39) RALLY S: 1350.70 6.32 (6.74)
Euro/US$ 1.322 BULL S: 1.3062 2.66 (2.65) DECLINE * S: 1.3321 0.12 (1.30)
Oil (CL) 107.65 BULL S: 97.82 5.4 (5.76) RALLY S: 105.41 2.66 (2.32)

(Legend: W = weekly, D = daily, R = resistance, S = support, MoM = momentum monitor, * = changed from previous week/day)
(for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

I have been too busy, so my promised article on the MoM indicator will have to wait a bit.

Important developments in the key reversal levels last week:

* All covered stock indices are back into decline mode, and the overall picture shows momentum (MoM) continuing to go down as well, both on the weekly and daily basis. This means it is too early to declare this correction over. All covered markets remain in bull status, but some are coming close to testing their weekly key reversal levels.

* Bonds (TLT) have switched into rally mode by climbing above their daily key reversal level last week. Momentum is going up nicely. So, the next hurdle is now the weekly key reversal level, which is currently at 112.48.

* Gold reached its weekly key level, but failed to hold above it and was turned back down. So it remains in bear status. The daily momentum has now turned down for gold, which suggests that the recent rally is probably over for a while.

* The Euro/US$ has fallen into decline mode, as was already indicated by its stalling momentum last week. Stalling daily momentum has become downward momentum and we should now watch the weekly key level at 1.3062 to see if the Euro can hold on to bull status.

* Oil tried to rally but failed at the $110 hurdle again. Weekly MoM remains down. It is still undecided where oil prices are going next: above $110 or below $100. But the repeated failure at the $110 level suggests that a move to the downside is becoming more likely.

And here are our key target levels:

 Key Targets Top Top2 Bottom Bottom2
Nasdaq 3730 3830 3530  3210
S&P 500 1738 1799 1576 1522
Nikkei 16580 17980 12710  10450
FTSE 100 6750 7100 6205 6110
DAX 8550 8920 7210 7030
Bonds (TLT) 128.50 134 102 96.25
Gold (spot) 1448 1540 * 1078 1001
Euro/US$ 1.36 1.3950 1.2350 1.17
Crude Oil(CL) 109.40 121 89.50 77

(* = new target, Bold = closely matches a major weekly key target )
(for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Important developments last week:

* We recorded a new top target level for gold at 1540. Of course, it won’t come into play until gold gets above its 1448 top target. It tried last week and turned back down.

* Oil prices tested their top target at 109.40 again, and was met by selling again. Oil has now failed at this level four times since July.

An important point to remember: these key targets are to be used as target zones rather than a fixed price. I use a +/-1% on them.
So, when gold reached 1433.70 last week it tested its top target at 1448. I consider the target broken only when there is a close more than 1% above the target (or below the target for bottom targets). In this case we would need gold to close above 1462.50 (= 1448 + 14.5) to consider this target broken and start looking at the next one.
It is actually common for two well known candlestick patterns to appear at these target levels. Near top targets we can get shooting star candles and near the bottom targets we tend to get hammer candles.
Watch for them. If a hammer or shooting star candle occurs within a target +/-1%, then it is a good opportunity to initiate some positions to benefit from expected price reversal. For example buy some put options when a shooting star is seen on a top target, or buy some calls when a hammer is formed at a bottom target. A small position to get a foot in the door, and then add to the position if the market does indeed turn and moves past the key reversal levels we list in the table above. You can always sell the options for a small loss if the market does not turn and goes on to break through the top or bottom target. These are trades with 5 to 1 or even 10 to 1 reward-to-risk ratios, so you don’t need a lot of winners to come out ahead with this method.

In a future post I will focus on the various practical trading strategies that can be used with these key reversal and key target levels.

Good luck,
Danny

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