LunaticTrader

Investing with the Moon

Hesitation

Posted by Danny on June 6, 2016

Stock markets have started sputtering right at the obvious resistance levels. To push through or to pull back, that’s the question at this point. Let’s have a quick look at the S&P 500 chart:

^SP500 (Daily)  9_2_2014 - 6_3_2016

A push towards 2150 or a retreat to just above 2000, at first glance both appear more or less equally possible if you look at this chart.
My faster Earl indicator (blue line) is the first to turn down, which is often a good early warning sign but does not rule out a few more days of upside action (which could take the index to 2150 before pulling back). The slower Earl2 (orange line) keeps pointing up, which means that any pullback could be rather short-lived.

I am not going to put my hand in the fire for either outcome. With this kind of setup it is usually a good time to go fishing or surfing. Political noise, like Brexit vote, is likely to keep making headlines for most of June and that doesn’t make it any easier to tell which way the market will swing next.
A new lunar red period will start later this week, so from that perspective stocks are likely to remain under pressure in the coming weeks.
Note: a lot of commentary seems to take it for granted that a Brexit would mean a drop in stock markets. I wouldn’t be too sure about that. Stocks may go up on Brexit news, or just drop for a few hours and then rebound.. Always expect the unexpected.

Bottom line: yes, go fishing and come back by the end of June.

4 Responses to “Hesitation”

  1. despe06 said

    Looks like a higher cross of the Earl1 oscillator is a good buy signal. I think we will have soon a cross on the Earl2. A good oscillator may give 80% of valid signals, but the trade management would be crucial. For example FTSE and GBP/USD bought on a buy signal two-three days ago. Lock at break even? Wait till the referendum?

    • Danny said

      Hi Despe,

      The Earl gives good buy signals when it turns up from a major low, but sometimes it is early (hence the name ;-) The Earl2 is slower and when both turn up from a major low within days it is often a great buy signal.
      You can wait for Earl to cross above smoother, as you point out, and that will sometimes give a “perfect” entry :-)

      FTSE 100 gave a Buy signal in my reversal levels 10 days ago and needs to close above 6180 to stay in bullish mode.
      GBPUSD is weak bearish in my system and needs a daily close above 1.4586 to give a Buy signal, so until that happens I would stay out.

      I wouldn’t trade based on referendum or other “news”. Trading based on news or expected news is usually a losing proposition because there are always market participants who have access to that news before we do.
      I trade based on “price” and negate all the rest. It is price we pay and price we sell, so that’s the only thing that determines whether we win or lose.

      Danny

      • despe06 said

        Oh, why would I trade on news or the referendum outcome :) I mean that if you have a trade which is in a positive territory, there is always a temptation to stick to it before the pickup in volatility as the market may go your way.
        As to the referendum, the Brits may vote for exit despite the overwhelming pressure from the media and politicians. The impact will be a temporal surge in volatility. A sustained direction is less likely, but it may be established in the months to come. I agree that entering the market now because of an expected result and a presumed market reaction makes no much sense.

      • Danny said

        Well, to each his own, of course. I don’t trade based on news or on expected news, so there is not much I can answer to that kind of questions.
        Even if I did know in advance how the Brits would vote, I would still have no idea how the market would react to that. It would not be the first or the last time that a given piece of news triggers the exact opposite reaction from what majority of traders expected. I have seen markets go up on “bad” news and go down on “bad” news. I have also seen markets go down on “good” news and go up on “good” news.
        Basically, if you have a trade that is in profit and if you are worried about some upcoming piece of news, then I would just sell a portion and keep the rest. Of course would also depend on how big the position is. My main criterion is: if I start losing sleep at night then my positions are probably too big…

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