LunaticTrader

Investing with the Moon

Outlook for June 24

Posted by Danny on June 24, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

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Very low SKEW

Posted by Danny on June 17, 2019

In 2015 I posted an article, explaining why watching SKEW is more important than watching the VIX: Forget the VIX, watch the SKEW.

In brief, SKEW index has a history of staying relatively high during bull markets and suddenly become low at the start of bear markets. This is what happened both at the 2000 and 2007 stock market peaks.
The article (April 2015) pointed out that SKEW was once again dropping to lower levels, and this did indeed lead to the first serious corrections in years, with the S&P 500 finding a major low in early 2016.

I revisited this topic in March 2017, when a persistently high SKEW suggested the bull market would continue: SKEW is high again. The market kept climbing until mid 2018, with SKEW staying very high.
But since last October, SKEW has made a significant drop and has stayed low even though the market has rebounded to near its records. This is what we have now:

sp_skew

Days with SKEW below 120 have become the norm and the 50 week MA of the SKEW (blue) is dropping below the 300 week MA (green). The previous time this kind of crossover happened was in early 2008, when the global financial crisis was starting. The same thing happened in August 2000, when the dotcom mania led to a major bear market (see charts in the 2015 article).
If SKEW stays this low then I would remain very very careful. If SKEW gets back above 130 more regularly then we could well see a continuing bull market. So, I keep an eye on it.

Another measure I use to detect possible market tops is “ATR%”, which was shared in this article a few years ago: Why the VIX is so low and why you shouldn’t worry about it yet. Back then real volatility was extremely low, and as my research pointed out, markets do not peak on record low volatility. Major peaks tend to be made on higher volatility. That means we usually get plenty advance warning before the market actually turns down.

Right now we have this situation where real volatility is already well above recent record lows. Here is the updated daily ATR% for S&P 500:

spx_atr1

All time record lows for daily ATR% were reached in October 2017. The market has meanwhile set two further record highs with ATR% well above those lows. This is the kind of setup we have seen at previous major peaks. A reason for caution.

The same is seen in weekly ATR% for S&P 500:

spx_atr_w

Weekly ATR% reached a 56 year low in early 2018. Market has printed two further record highs with weekly ATR% well above those lows. So, volatility is already climbing with the S&P 500 still going up. That’s how markets tend to peak, but it doesn’t mean things will crash tomorrow. Historically the lowest weekly ATR% values tend to happen in the second half of secular bull market advances, but usually somewhat nearer to the middle of the move. E.g. in the 1990s bull market the lowest ATR% levels came in 1994 and 1995, more than five years before the end of the move. The roaring 1920s are also a good example:

atr_w_20

The lowest weekly ATR% was recorded in 1925, right in the middle of the move. Subsequent years brought rising volatility in a rising market, ending with both prices and volatility blowing off in the final ten months. That could happen again.

The recent low weekly ATR% came in early 2018. If that was again near the middle of the move then we would have another 5 to 7 years of bull market ahead of us, which would result in a major peak around 2025 accompanied by high volatility. Crazy you might think, but it would make this period similar to the 1950-60s, where the US had very high public debt (post WW2) combined with very low interest rates and ongoing productivity gains because of major innovation.
How high would the market go in that extended bull scenario? On previous occasions the S&P 500 typically doubled from the lowest weekly ATR% point to its peak several years later. If that happens again we would be looking for S&P 500 to reach 5000 or 6000 in the mid 2020s.

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Outlook for June 17

Posted by Danny on June 16, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Watershed lines

Posted by Danny on June 12, 2019

Some long term charts and info about a few new indicators from my experiments box. I have started showing those indicators in my charts on Twitter and here on the blog from time to time, so this will be the go to article for people with questions about it.

To me, the main aim of an investor or trader should always be to stay on the right side of the market. Price targets, overbought or oversold, wave counts, etc… are all secondary if not tertiary considerations.
If we can manage to be (and stay) on the right side of the market most of the time, then the rest will take care of itself.

On a most simple level I want to see a market/stock make higher highs and higher lows if I am bullish, or conversely lower highs and lower lows if I am bearish. If that’s not (or no longer) the case, then I better consider that conditions may have changed and I am now on the wrong side of the market. In practice it’s a bit more complex of course, but some people are still doing very well with that basic approach.

Watershed lines (examples up next) are just another attempt at determining that rewarding “right side of the market”. I use them together with “BMO” and “BUD” indicators, which some of the more frequent readers here probably know already. A picture says more than a thousand words, so here it goes with monthly gold. (Note: those indicators work on all timeframes from daily up to very long term quarterly. I will be focusing on some long term charts in this article)

gold_m

Watershed line turns blue (up) during bull markets and red (down) during bear markets and corrective phases. BMO and BUD can be used for more optimal entry and exit. Both have an “optimized lag”, which means they can be early as well as late. That means we don’t have to anticipate possible turns, we just wait until they DO turn. Both are green and going above the zero line during bullish phases, and turn yellow in bearish or corrective phases. The idea is to buy on a BMO low after BUD has turned bullish (green arrow). One can also buy subsequent BMO lows as long as BUD stays green with the Watershed line going up (blue). Some profit taking is best done on BMO peaks when we see BUD starts sputtering, and we sell all when BUD turns bearish (orange down arrow) or on the first BMO peak after BUD turns bearish.

Here we see how BUD turned bullish for gold in early 2018. BMO made a nice bottom in late 2018, which was a great entry point. Now the Watershed line is tentatively turning up, which bodes well for possible long term gains.

Here is monthly EURUSD:

EURUSD_m

This setup is very similar to gold in year 2000. BUD turned bullish in 2017, so we are ready to buy on a BMO low. BMO turned up 6 months ago, but Euro has continued to drift lower just above the Watershed. This is still a good chance to buy while using the Watershed at 1.10 as a stop level.

Monthly S&P 500:

spx_m

Buying BMO bottoms during BUD yellow phases would have taken some of the best opportunities of the recent decades. There is no BUD sell signal yet, but it is sputtering and it is an aging move. So some caution is warranted, but it’s not wise to bet against the market as long as it trades well above the Watershed (currently at 2677).

Quarterly Dow Industrials:

dj_q

This is the most long term scenario we can crank out. Interestingly, BUD has alternated 30 year bullish periods with 10 year bearish (yellow) phases. In the bullish phases the market tends to multiply 10x. If that rhythm continues then we are headed for Dow 100k by the late 2030s. Is that crazy? No, it isn’t.

8% nominal change compounded for 30 years gives 10 times the starting price. People who think the economy must crash because debt is too high don’t understand the effects of long term compounding. If you are old enough to remember what prices were 30-40 years ago then you will see that almost everything has done something like x10. The price of a beer, a house or a car is 10 times higher, the national debt is 10 times higher, the budget deficit is 10 times higher, GDP is 10 times higher, money supply is 10 times higher, and the stock market is 10 times higher… Just 1.08^30.
If you find something that hasn’t gone up 10x over the last 30-40 years then chances are it is a good buy because it will eventually catch up.

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Outlook for June 10

Posted by Danny on June 10, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

LT wave for June 2019

Posted by Danny on June 3, 2019

The LT wave for May did a fair job. The neutral readings in the first week gave more downside action than expected. The stronger second week produced the only multi-day rally attempt of the month. And the second half of May was as weak as projected by the wave. Not bad.

Here is the expected pattern for June:

ltwaveJun2019

Weakness ends around the 3rd and gives way to a more positive week with a peak value around the 7th. The second half of the month is projected to be weaker again.

Good luck.

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Outlook for Jun 3

Posted by Danny on June 2, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Outlook for May 27

Posted by Danny on May 27, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Outlook for May 20

Posted by Danny on May 19, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

Outlook for May 13

Posted by Danny on May 12, 2019

Outlook for world markets with my brief comments for next week.

Click the “Expand” button (bottom right) to watch in full screen mode.

If you have any trouble to see the presentation below, then click here.

For shorter term trading and more optimal entries there are daily reversal levels, which are available by monthly subscription. It comes as a daily html file covering over 3000 stocks and ETF. Instructions for use are included. Give it a try.

Posted in Market Commentary | Tagged: , , | Leave a Comment »

 
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