LunaticTrader

Investing with the Moon

Key reversal levels for week of July 7, 2014

Posted by Danny on July 6, 2014

Comments for this week :

* US markets have continued to push higher, while the UK and Germany are more cautious and continue to sit near major resistance levels. Weekly key levels remain bullish for stocks.

* In the daily key levels all major stock indexes have followed the lead of the Nasdaq and are back in rally mode with upward MoM. People who are looking for a chance to go short would do well to wait at least until daily MoM turns down again, which is the earliest sign of a possible top. But remember, going short in a strong bull market usually means you end up paying for somebody else’s Ferrari. It is much easier to make money with the trend. Price is the only indicator that WILL tell us when the market has turned down, by first falling below the daily key level and then falling below the weekly key level. Once that has happened, then we can start looking to go short. No major bear market can start without the S&P 500 going below 1852.69, which is our current weekly key reversal level. Trading is waiting: first let the market prove to you that it has turned direction, and then act… and then wait again for the market to prove to you that the move has run its course. This is: don’t shoot before you actually see duck. It sounds easy but it is hard to do. Many traders just can’t wait until the fish bites. And it also took me 20+ years to really learn that lesson. If women are better traders it is because they are generally better when it comes to waiting. Men have to learn waiting, so they tend to become better traders with age.

* We have several new and updated key target zones this week. The old Top1 targets for Nasdaq and S&P 500 are now out of the way. The new Top1 targets are 2001 for the S&P 500 and 4531 for the Nasdaq (see table below).

* In other world markets we are still waiting for China, the only market that remains in bearish mode, to break above its weekly key level. A weekly close above 2073.86 would turn the Shanghai Composite bullish, and then all the stock markets in our list would be in bullish mode. That hasn’t happened since we share these tables here on the blog.

* Bonds (TLT) have gone into declining mode. A weekly close below 109.13 would turn bonds fully bearish. Some of the money that comes out of bonds is likely to move into stocks. When that happens we will enter the bullish final stage of the 1920s scenario.

* Gold is digesting recent gains. Still bullish.

* The Euro refuses to show its hand. Now turning daily bearish again. But MoM is turning up on the weekly level. Mixed signals = wait.

* Oil has not shown follow through to the upside and now we get the logical downturn. Needs a close above 105.55 to get back into rally mode.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 27 stocks are bullish this week, up from 25 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,485.93 4,089.30 6.17 78 45.21
S&P 500 1,985.44 1,852.69 7.39 83 40.18
Nikkei 15,437.13 14,551.48 2.67 4 1.53
FTSE 100 6,866.10 6,711.45 1.87 9 0.64
DAX 10,009.08 9,394.49 4.74 14 4.02
Bonds (TLT) 110.68 109.13 2.70 23 3.74
Gold (spot) 1,320.42 1,276.50 -0.37 2 0.42
$EURUSD 1.3593 1.3738 -2.26 7 -0.70
Oil (CL) 104.06 101.05 2.97 20 3.94

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

7/3/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,485.93 4,320.88 7.78 30 8.46 1
S&P 500 1,985.44 1,941.56 5.47 30 5.15 1
Nikkei 15,437.13 15,070.94 3.30 31 7.12 1
FTSE 100 6,866.10 6,778.87 1.11 2 0.73 5
DAX 10,009.08 9,872.29 0.21 1 -0.20 5
Bonds (TLT) 110.68 112.73 0.41 1 0.27 7
Gold (spot) 1,320.42 1,290.50 5.15 16 3.73 2
$EURUSD 1.3593 1.3652 1.95 0 0.00 39
Oil (CL) 104.06 105.55 -0.87 0 0.00 35

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4531 4588 * 3975 3742
S&P 500 2001 2031 * 1755 1641
Nikkei 15976 17220 13860 12940
FTSE 100 6800 7110 6642 * 6230
DAX 10240 10450 9682 * 8715
Bonds (TLT) 114.60 115.70 108.25 102
Gold (spot) 1415 * 1541 1160 1075
$EURUSD 1.3950 1.42 1.3403 1.2870
Crude Oil(CL) 109.24 112.47 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Stay tuned, Danny

 

3 Responses to “Key reversal levels for week of July 7, 2014”

  1. bob collett said

    Hi Danny
    Nice post……. some wise words on tops and a bit of morality.
    My SA market is at 52000 (it dropped a bit today)
    The key weekly level is at 48000
    i know you have answered this question before.But if I held my long position, thats 4000 points @ $4 a point, before its time to sell. Thats too much to give back
    Where am I going wrong?
    kind regards
    bob

    • Danny said

      Hi Bob,

      A trend following system typically misses the early part of a trending move, and it gives back some gains at the end of a move. That cannot be avoided. So, the question becomes: how much of a give back can we afford? Well, it will also depend at what point we have entered the market. A weekly system is rather long term, and then the give back at the end can be quite significant, especially after a large move. The South African has the longest bullish trend of all the indexes in our list, at 103 weeks and counting. It is up 53% since the weekly mode turned bullish, so a give back of ~8% at the end of such a move is quite OK.
      Of course the situation is different if you entered the market at a later point, then to risk a give back of 8% may be too much.
      So, that’s where the MoM indicator can come in. It is still going up for SA (printed in green), but reaching a rather high 7.64 level. Once MoM starts going down from such a high level it is always a good idea to take partial profits. A correction will typically take a market back down towards the weekly key level (~48000), and at that point you can go back to fully long by buying back the half you sold. So let’s say MoM turns down next week. You sell half of your position at 51000 for example, and then you wait. If SA drops to 48500 you can buy again to get back to full position. Then one of two things will happen: market resumes upwards and you have made some extra profit by selling half and buying it back. Or market drops further and closes the week below the weekly key level. In that case you sell all. You would then wait for the market to close above weekly key again to re-enter the market.
      That’s how I would trade it.

      Of course, the daily key reversal level is closer to the market, it is around 50400 at the moment. But it will not be possible to stay in an uptrend for 103 weeks based on the daily keys. Using the daily keys there will be more in and out trading, the “give back” will be smaller, but you will have a give back much more often. At the end of the day you may discover that using the weekly keys (with its bigger give back) is actually beating the daily keys when it comes to actual profits at the end of the year.

      Now, let’s say somebody is out of the SA market and looking for a chance to go long. Well, he looks at my weekly key levels and sees that the market is at 52000 with the weekly key at 48000. That is a 4000 point (~ 8%) difference, which is more than he wants to risk on the trade. That means he better waits for a more opportune entry point. Maybe a few weeks from now, the market is at 49500 with the weekly key at 49000. Then he can enter the market with a ~500 point risk, which is much better. If he is wrong and the market goes on to close below the weekly key level, then he will be out with a ~1% loss.

      The trader has to decide how much he wants to risk on a given trade, and then see if their is a chance to enter the market with that amount of risk. If not he better waits.

      E.g. in early Feb the weekly key level for SA was at 43,938 : https://twitter.com/lunatictrader1/status/429670638354059265/photo/1 The next week the SA market dropped as low as 44,145. So that was a chance to get in on the trend with a small stop-loss. Same happened in mid Dec 2013. SA closed the week at 43,185 with the weekly key level at 43,070 : https://twitter.com/lunatictrader1/status/412502542686248960/photo/1
      Of course, sooner or later the market will no longer keep above the weekly key level, but then we just get out with a loss and move on. This will happen half the time, but if the average profits you take are bigger than the losses then that’s not a problem. So, the trick is to wait for these low risk entry points when the market comes very close to the weekly key level. That’s when we can (re)enter an existing trend with a small stop. This is what I call the “opportunist” method for using the key levels, it is one of my favorite methods. I will try to do a blog post on it with more examples. With SA now near 52000 you can calculate the profits if you had taken the above mentioned trades.

      Does that make sense?

      (Note: in the key level tables, the markets that are close to their key levels are shown with a grey background in the “Current” column, making them easy to spot.)

      Danny

      • bob collett said

        Hi Danny
        Thank you . It makes perfect sense.
        In your next life you will come back as a famous trading mentor.
        I have closed my LONG position.
        kind regards
        Bob

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