Posted by Danny on May 4, 2015
Stocks weakened last week, but the Nasdaq remains in the rising wedge pattern that started last year. It is still not clear which way the eventual breakout move will go. Here is the current Nasdaq chart (click image to enlarge it):
Thursday’s drop threatened a breakout to the downside, but Friday’s recovery shows the Nasdaq might try to hang on. We remain in a lunar red period until later this week, and my technical indicators are pointing down with bearish divergences in place. This means the Nasdaq remains at risk of a sudden sharp drop as long as this pattern is not resolved.
This is still not an attractive entry point for investors who are looking to go long. So, I would wait until the sky clears.
The LT wave for April did a good job, indicating the main swings of the month pretty well. Here is the LT wave for May (click image to enlarge it):
The wave projects weakness in the first half of the month followed by a stronger period. The lowest values come on May 6-8 and on May 15. The highest value of the month is on May 21, with smaller peaks on May 3, May 11 and May29-30.
As always, use this LT wave with the necessary care as it is an experimental method.
I have also updated our Dow 32000 scenario, comparing the current market to the great bull run of the 1920s (click image to enlarge it):
For the first time in more than a year we see the market deviate a bit from the pattern it followed in the 1920s. This had to happen sooner or later. As I pointed out in the most recent review of this scenario, the Dow needed to climb to 20000 this spring to stay on track, and that has clearly not happened. Of course, the Dow could catch up by reaching the 20000 level this summer, and then it would be back in line with the 1920s. But that remains to be seen of course.
Interestingly we are ending the period that was marked by mild recession in the 1920s scenario and closing in on the point where the Fed started raising interest rates. That sparked the final mania stage in 1928-29. Are we setting up for a repeat? Most investors are probably not prepared for anything like that, so it could be interesting.