LT wave for October
Posted by Danny on October 6, 2014
Another volatile week pulled stock markets down, only to see them rebound strongly by the end of the week. What’s next?
As we pointed out last week, the market is at a high risk point. That is still the case here. Last week’s drop has set important lows. If these lows get broken to the downside, then we are very likely to get a bigger drop.
The situation is quite clear on the Nasdaq chart (click for larger image):
Thursday’s low tested the long term up trend support line. The market rebounded very strongly and climbed right back to the July highs. We can expect some resistance at this point. A second test of the 4400 level is easily possible, but not a given.
Technically my indicators are coming close to bottoming, with the faster Earl (blue line) tentatively turning up already. The slower Earl2 (orange line) will need a bit more time to turn up. We remain in a lunar red period, favoring more weakness in stocks.
I think the next week will be sideways to down, looking for direction. Longer term I would just wait and watch what happens first: a break out to new highs or a drop below 4320.
With this kind of setup I prefer to stand aside. The downside risk is still high, while the upside potential is limited by the resistance level formed by recent highs. In the market there is always enough money to be made by going along with what happens. We can try to estimate odds for a given move, or attempt to predict what will happen, but at the end of the day it is our going along *with* the market that makes the money, while trying to fight the market usually costs money. The desire to make forecasts, and the ego that comes with it, is what tends to get (and keep) us into fighting the market. An expensive hobby. Humbly going along with the moves that come is not very ego-fulfilling and that’s why it is a difficult thing to do.
I was too busy to post the LT wave for October, so here it is (click for larger image):
Expected weakness in the beginning of September panned out as sideways action, but expected strength after the 20th failed quickly. The market embarked on a serious decline and printed a low on October 2nd.
October 2nd happens to be a major bottom value in the LT wave for October. Other expected lows for October are seen on the 10th, 18th and 29th. This can be lower lows, or just pullbacks in a rising or sideways market. The projection looks fairly neutral with the strongest period coming in the second half of the month.
Remember, this LT wave is experimental, so use with the necessary caution.