The long sideways
Posted by Danny on August 3, 2015
Stocks had a fairly good week. The lunar red period is ending today, so this could be a good base to build on. The S&P 500 stays in a long sideways range that started in February. It is unusual for a major index to keep hovering within a narrow 5% range for so long. When the breakout comes, as it eventually must, it is likely to produce a big move. Here is the current chart (click image to enlarge it):
Technically the Earl (blue line) and MoM indicators are turning up from shallow bottoms. The slower Earl2 (orange line) is rather neutral but still going up from its early July lows. This looks pretty good as long as last Monday’s lows are not being revisited. Some people will see a reverse head and shoulders pattern in the price action since early June, and that would lead to more buying if the S&P can break above the 2140 resistance level. A move to 2300 is in the cards if that happens, because it would be a breakaway from the long sideways pattern. Long sideways patterns have slightly better odds of resolving in the direction of the long term trend, which is still up. But they can break down too, and in that case we would probably see a violent downturn. I am quite sure that some options traders are playing this with a strangle, in order to benefit from a big move either way.
It’s a new month, so time to get out the LT wave chart for August (click image to enlarge it):
The LT wave had another good month in July as the expected strong period in the middle of the month panned out beautifully. For August a similar pattern is projected. After an hesitating start a strong period is expected until the 21st, followed by weakness in the final week. The highest value of the month comes on the 17th with the lowest LT wave value on the 25th. As always, bear in mind that this LT wave is experimental and past performance guarantees nothing.
I am working to add the LT wave into the Lunatic Trader program, which will give you the LT wave charts until the year 2100. So, stay tuned if you like these charts.