LunaticTrader

Investing with the Moon

Correction is not over

Posted by Danny on October 14, 2013

Markets took a serious dip last week and rebounded equally quickly on the back of political noise.
I prefer not to listen to the news too much, because one day it worries investors only to elate them the next, each time putting them on the wrong foot.
That’s why I rarely every comment on news or other fundamentals. It is just too costly to listen to it.

We remain in a lunar red period until well into next week, so I wouldn’t be too quick to conclude that the correction is already over.

This Nasdaq chart shows why (click for larger image):

Nasdaq

A few weeks ago we pointed out that it was a time to push higher for the Nasdaq. The Nasdaq promptly pushed above 3800, making new highs for the year, but then failed to build onto it. This suggests the market needs to go lower before it can go higher.
Was last week’s drop enough? Well, only a few down days after a long rally looks extremely short as far as corrections go.

Technically, the current setup is very similar to last June, when an initial drop was followed by some consolidation and then another low a few weeks later (see chart). If the same scenario unfolds, then look for a lower low in late October or early November. In any case I wouldn’t buy until the Earl2 indicator makes a bottom.

A perfect target for the Nasdaq would be 3600, where it would find support on the long term trendline.
But life isn’t perfect, and that’s how it is perfect.

Good luck,
Danny

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4 Responses to “Correction is not over”

  1. KR said

    Hi Danny, great post and well captured summary. One quick question on solar activity. My visual read looking at the solar picture is that there could be more sun spot/storm activity this week. Is that true? If yes, then that could potentially contribute to sell off too.

    • Danny said

      Hi KR,

      Yes, we currently see a spike in solar activity. But the sunspot activity has not been a reliable indicator for stock market activity lately.
      At the bottom of my solar activity page (https://lunatictrader.wordpress.com/solar-activity/), you can see a chart summarizing the last 12 months of solar and geomagnetic activity, with the red line showing the sunspot number.
      So it is useful to look back on what happened on previous occasions
      The most recent sunspot activity spike in mid August coincided with a market bottom, but the even bigger spike in solar activity in mid May coincided with a market peak. The solar activity spike in mid January didn’t stop the stock market from going up either.

      So I wouldn’t read too much in the sunspot activity for the moment.
      Sunspot activity spikes have shown a short term negative effect in strong solar cycles, but we have a very weak cycle now.
      I try to go with what works and lately it has not been the sunspots that give us clues where the market is going.

      Danny

  2. Michael said

    Hi Danny, I read the four pillar finanace 2013 prediction it said s&p 500 close the year at 1460 any chance of that panning out? your prediction for china korea japan seemed very accurate. On the precious metals it seem very accurate except it sort of flat not rally later. I can’t read charts but noticed the only 2 big down days stockmarket back to back were end of april when gold came unglued fell by $100 oz one day.I read in Elle magazine that eclipse oct 18th. If a lower low develops does this mean lower than june low to erase some of month of mays gains down to 1500? Please let me know thank you mike

    • Danny said

      Hi Michael,
      If you read my 2012 forecasts you will see where the S&P 1460 target for end of 2013 came from. It is based on the average “strong decade” since year 1800, and that’s why we can set out price targets for the rest of the decade.
      These long term targets are not supposed to be met exactly, but are ballpark figure that tell us whether we are in the strong or weak decade scenario. So far the price action remains consistent with a strong decade, and actually the market is ahead of schedule.
      Does that mean the S&P has to fall back to 1460 before moving on?
      Not necessarily. If we are in an extremely strong 1920s type decade, as I discussed in some recent posts (https://lunatictrader.wordpress.com/2013/08/21/dow-jones-high-correlation-with-1920s-continues/), then the market will just move sideways for a while and then push higher again in 2014.

      With regards to lower low mentioned in my post. It means lower than last week’s low, as the price action is expected to resemble the late June events as shown in the pink circle.
      So first downside target for Nasdaq is 3600 (trendline support). For S&P it is harder to point out a target. I would look for 1630 or 1580.
      If the market falls below these levels, that’s when we can start looking for much lower targets like 1520 or 1460 on the S&P.

      Danny

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