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LT wave for November

Posted by Danny on October 30, 2017

Stocks have reached new record highs. But bullish participation has started to weaken again ( see Outlook for week of October 30). A shrinking number of stocks is carrying indexes higher and that’s always something to keep an eye on. Let’s have a look at the Nasdaq chart before sharing the LT wave for November:

^COMP (Daily) 2_16_2016 - 10_27_2017

The Nasdaq keeps moving within a nice channel it has been occupying for most of the year. Friday’s jump has taken the Nasdaq to the upper bound, but this is not a breakout that suggests upward acceleration.
My indicators are showing red flags as well. The Earl (blue line) shows a bearish divergence, while the slower Earl2 (orange line) has peaked and turned lower. The MoM is also on a downward trajectory after peaking out near the 8-euphoric zone. While none of this presents obstacles that cannot be overcome, it is not the kind of setup that prompts me to do fresh short term buying.

Sometimes the best strategy is wait and see. This is an aging rally and there has been no pullback worth talking about for more than year. If investing was always this safe and easy then nobody would be working.

October was not a good month for our LT wave. Expected weakness early in the month did not pan out, but projected strength in the 3rd week came right on target. Markets pulled back from record highs in the final week, when the wave suggested new weakness. But that didn’t carry on and the index bounced right back in the final days. Here is the wave for November:


Weakness is expected until the 7th, with lowest LT wave values of the month coming on the 6th and 7th. If that brings a market low then a rebound should follow until the 17th or 20th. The final 10 days of November look weak.
Remember the LT wave is experimental, so do not bet the bank on it.

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The Euro and the Nasdaq

Posted by Danny on September 11, 2017

Stock markets are stagnating just below their recent record highs. The Nasdaq gained 89 points in the recent lunar red period, which is the best performance in a red period since early February. Is this the start of another major rally? Or just a fake-out before a significant decline? It is hard to tell right now. Here is the current Nasdaq chart:

^COMP (Daily) 11_24_2015 - 9_8_2017

Since our previous review of Nasdaq the bearish scenario has been avoided and the long term up trend line (blue) has held. The odds of a continuing bull market have gone up, but we still don’t see a sustained breakout above 6400. So, it’s too early to bury the bearish scenario.

We are starting a new lunar green period and our LT wave for September is positive for the coming weeks. But my Earl indicator has turned down with the MoM also stagnating at high level. So, I don’t know what will happen next. Something has got to give… Another rally to new highs is certainly feasible. But a downturn with sudden acceleration on break below 6200 is equally likely. We may even see the “path of max confusion” with major indexes eking out new highs for a day or two before turning down rather sharply. I would just wait for the inevitable breakout (up or down) and keep my powder dry until the uncertainty starts clearing.

As chart of the week I have chosen a monthly EURUSD chart:


The Euro has been in a long term down trend (blue channel) since 2008. We see a strong rebound since the beginning of 2017, but now the Euro is bumping into the 1.20 zone, which has been a major support-resistance level for almost 20 years. I would not expect the Euro to break above this major resistance level on its first attempt. A peak as high as 1.22 or 1.23 is possible, but I would look for a significant pullback before the Euro can possibly break higher in 2018 or later. A multi-month pause may be up next, but I think a pullback to 1.12 is the base scenario for now. What could cause the Euro to weaken versus the $US? I think the upcoming “quantitative squeezing” is a prime candidate. If the Fed starts reducing their balance sheet, as they already announced, then it will make US$ more scarce. Simple supply and demand would then push the $ higher, especially if other central banks are waiting with this QS step. I plan to do an article on this “quantitative squeezing” and what consequences it will have for stocks and bonds. The EURUSD chart is something we will have to keep an eye on.

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Did the market peak?

Posted by Danny on August 21, 2017

Stock markets remain under some pressure, but overall the pullback is still small. It is amazing how quickly investors’ talk has changed to crash predictions, which makes me think there is more upside to come before we see a more serious decline. Here is the current S&P 500 chart:

^SP500 (Daily) 11_5_2015 - 8_18_2017

The S&P 500 is currently testing major support near 2420. A drop below 2400 would definitely not look good, but as long as that doesn’t happen we better the possibility of another rally here. All my indicators are in the bottom zone but not turning up yet. If the S&P can hold above 2400 for a few more days then the Earl is likely to turn up first, with MoM following suit. But that remains to be seen, of course. We are in a lunar green period and our LT wave goes strongly positive this week. That “should” give us at least some rebound rally and if that rally is very weak then it would be a very bearish sign.

The solar eclipse over the US will gather some attention today, even on Wall Street. I wrote about this eclipse a few months ago, so you may want to check out that article. See also my older article: Eclipses and the Stock Market. Basically, the historic tendency has been for stocks to drop in the lunar red period that comes two weeks before a solar eclipse. The Nasdaq dropped 206 points in the lunar red period that ended on August 11, again confirming that idea. And then the market tends to climb in the green period containing the eclipse itself. We will find out this week if that happens again.

That wouldn’t rule out a further correction or even bear market in September or October, but I wouldn’t worry too much as long as the 2400 level holds in the S&P 500.

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So bitcoin hits my long term target

Posted by Danny on August 14, 2017

Normally I write about bitcoin once a year, but since my last post in May the cryptos have become a very fast market and now my long term price target of $4246 is being reached. So, I will give a quick update and some new price targets.
But first I want to take a look at stock markets where some interesting things are happening too. Here is the current Nasdaq chart:

^COMP (Daily) 10_27_2015 - 8_11_2017

Nasdaq has reached 6400 and S&P 500 has stagnated just below 2500, which was the base scenario I mentioned a month ago. Markets had a quick dip last week. Nothing unusual, the S&P was down 1.4% for the week, but people have become so accustomed to low volatility that this was enough to get some traders panicked already. What are those traders going to do if the markets are down more than 2 or 3% in a week (or day)? We will find out some day.
Long term trend lines in Nasdaq and S&P and are being tested but not broken yet. As long as that is the case we better assume that the bull run is ongoing. We are more likely than not to get a rebound rally here. We are starting a new lunar green period and the Earl indicator is in bottom territory (but not turning up yet). Whether that rebound will be weak or strong I don’t know. A sustained drop below 6200 would not look good and then the chances for a rebound rally would dwindle quickly.
Keep an eye on August 23rd, when our LT wave will peak for August. If that paints any kind of high (rebound high, double top or even all time high) then we could very well see a new downturn in the ensuing days.

So, what about those bitcoins? In February 2014 I posted price targets based on my reversal levels calculations. Bitcoin was trading above $600 back then, but my bottom target of $180 was nicely reached by early 2015 and then bitcoin started climbing again. I reiterated my long term buy signal in October 2015, when you could still buy bitcoin at $280. Of course we had to wait longer to get to my top targets of $2457 and $4246, but here we are with bitcoin knocking on $4200 over the weekend. So, does this mean the move is now over?
I really don’t know here, because the $4000 level is a very critical juncture in the long term chart:


Some people are warning about parabolic moves and bubbles already, but that’s because they are looking at a linear scaled chart. Moves of this magnitude can only be judged on a semi-log scale chart. What we see here is a sustained (but very high) rate of change, with the move confined to a rather narrow channel since 2015. The same rate of change it also held throughout 2012 before going parabolic in 2013. A sustained breakout above $4000 that quickly heads for $5000+ would start a parabolic move like in 2013. And then it can go above $10k. A failure to do so would probably give us a peak near my $4246 target and be followed by a significant decline when traders notice that the steep rally has ended.
Both scenarios have 50/50 chance at the moment, so if you hold bitcoin from a much lower cost base then I would sell some and hold the rest at zero cost base. A tulip mania type move is possible here and then bitcoin could reach $10k or $20k before a big panic.

Meanwhile my method shows two new price targets: $6430 could become relevant as a next top target or as a resistance zone on the way to even higher levels. And there is a bottom target at $1470. This would come into play if we get a big drop. Bear in mind, not all my targets and forecasts will work out. I am probably due for some bad calls on bitcoin.

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Ready for 2500

Posted by Danny on July 11, 2017

In my last post I recommended caution and wanted to see how the market gets through the lunar red period. Muddling through without further damage to the longer term uptrend would set us up for another rally in July-August.
That seems to be what we have got and if the market holds up a few more days then another rally will become the base scenario. Here is the current S&P 500 chart:

^SP500 (Daily) 10_5_2015 - 7_10_2017

The 2400 support level has held up well so far. It was tested twice but didn’t break. My Earl indicator (blue line) has bottomed out, which sets the stage for another rally. But the slower Earl2 (orange line) is still headed lower just below the zero line. The MoM indicator is also turning up from the yellow neutral zone.
After an extended bull move it is not unusual for the Earl2 to negate the final rally of the move and just stay flat near the zero line. That could be exactly what we are seeing here. Another rally would probably take this index up to just below 2500 (blue circle) in August and the Earl2 might completely negate that move. If that comes to pass we will have a bearish setup that could be very dangerous for the remainder of the year.
But first things first. The setup favors another rally and we will be starting a new lunar green period. The LT wave will also improve after the middle of the week. If we get the rally I would look for 2500 in August and possibly a major peak. If the rally fails quickly and the S&P drops below 2400 then we will know a bigger decline has already started.

I also want to show you a pattern that is showing up in the S&P since the early 2016 correction lows. The first rally off those lows peaked in August (negating the two day Brexit drops as an aberration) and was followed by a 3 month sideways.
Then the markets rallied 4 months, followed by 6 weeks of sideways action. And then the market rallied another 2 months, now followed by 3 weeks of sideways action (so far).
So, the rallies have been getting shorter and weaker and the sideways patterns that follow them have become shorter as well. The moves seem to halve in length with each iteration. If this self-similar pattern continues for another round then we should now start a 1 month rally with a peak somewhere in mid August. Here is a more close-up chart:


A move well above 2500 or a drop below 2400 would tell us something else is going on. So I wouldn’t bet the bank on this, just keeping my eyes open.

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Get ready for the August eclipse

Posted by Danny on June 14, 2017

Despite some air pockets the US stock indexes keep looking up. The recent lunar red period produced a 35 point loss for the Nasdaq and we have started a new green period. There will be total solar eclipse over the USA in August and it will probably get plenty media attention. So, we will have a good look later on in this article but first I want to share the current S&P chart:

^SP500 (Daily) 8_31_2015 - 6_13_2017

This market stays in a nice channel since the early 2016 corrections. S&P 500 is currently in the middle of the range and trying to decide whether it wants to visit the upper or lower boundary next.
The Earl indicator (blue line) has turned down, but this has only produced a sideways pause so far. The slower Earl2 (orange line) is climbing again after some hesitation. This suggests a continuing rally until we see Earl2 top out again.

Bullish participation had been weak in recent months but is now improving:


369 S&P stocks in bullish mode is the highest since early March. In healthy market advances the number of bullish stocks typically climbs above 400 (80%), like it did in February and December. If the number of bullish stocks falls back below 300 (60%) then the rally will be on hold. But as long as that doesn’t happen we better assume higher highs coming up. I keep monitoring this stat and you can find it in my weekly outlook posts on every Sunday.

So what’s up with that eclipse? Well, on August 21st there will be a total solar eclipse crossing the US from coast to coast:


Before you stash away extra sugar, water and canned tuna and sell all your stocks, remember that this has happened before and you would not be able to pinpoint those events on a long term chart of the markets unless you knew the dates. The most recent occasions were 26 February 1979 and 8 June 1918. Nothing unusual happened.

Historically, stocks markets actually perform slightly better than average in the weeks around a solar eclipse. See my old article: Eclipses and the stock market. So, if come August the market is still setting new records then some commentators may start pointing to this eclipse as the reason for a crash. Sure, there may be a market decline in September or October, but that doesn’t mean it would have anything to do with this eclipse.
I would rather watch this chart from 1987, exactly 30 years ago. Markets climbed in the first months of the year, then paused March to May and climbed to new highs in June to peak out in late August. The price action so far this year happens to be identical:


If we reach a major peak in August then I would expect it to come with significant bearish divergences and new investors’ enthusiasm pushing out doomsayers.

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LT wave for June

Posted by Danny on June 2, 2017

Markets continue to record new highs and the S&P 500 seems to have broken the resistance near the 2400 level. I didn’t see too many “sell in May” tweets, probably because that strategy failed last year, but that doesn’t tell us anything for this year. I would just ride this rally as long as it lasts, which is what we are doing with our reversal levels strategy.
How long? Well, the bullish scenario I updated last December is still on track: Dow 32000 revisited. It is feasible for the S&P 500 to reach 2500-600 by summer and then a final autumn surge could follow suit.
At the same time I want to keep an eye on the 88 year crash cycle I explored in this post from 2013: The long term crash cycle. This pointed to 2017 as the next candidate for a mania and crash. We will find out soon.

Let’s have a look at the Nasdaq before giving the LT wave chart for June:

^COMP (Daily) 8_18_2015 - 6_1_2017

Indicators are pointing up again after the brief pullback in mid May. We keep seeing a pattern of higher highs and higher lows. It is hard to fight a market like this. Short sellers keep getting punished and once they give up completely we may get the kind of final surge that pulls in the last bulls. Keep your eyes open and your ears closed.

Our LT wave had a decent month in May, here is the wave for June:


Expected strength until the 9th saw the S&P reach 2400 for the first time. The weaker period until the 23rd produced a significant dip followed by a strong final week.
For June the wave projects continued strength until the 5th and then a weaker period until the 20th. The final week is expected to be strong again, a pattern we have been seeing for several months.

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The bitcoin boom

Posted by Danny on May 9, 2017

Stocks keep trading with a positive bias and major indexes are reaching new all time highs. Our LT wave for May suggests some weakness is up next. We will find out soon. Here is the current S&P chart:

^SP500 (Daily) 7_28_2015 - 5_8_2017

The S&P exceeded its March 1 high yesterday, but it didn’t manage to stay above the 2400 resistance level. It may push through in the coming days, but if that doesn’t happen it will start to look like a failed breakout and that would probably trigger some selling.
The Earl indicator (blue line) has turned down, but the slower Earl2 (orange line) is still headed higher. This can go either way. A continued rally would probably target 2500 where it would test the upper boundary of the blue trend channel. A pullback could give us a revisit of 2300 for a test of the lower boundary.
I am short term neutral until we get more clarity.

Bitcoin is getting a lot of buzz recently as it keeps climbing to new record highs. I try to do a post about bitcoin once a year, so this a good opportunity for an update. I have been quite lucky with my calls on the crypto currencies. I went bearish on bitcoin in December 2013, just weeks before it peaked above $1000. In my second article I called for bitcoins to drop as low as $180, which came true a year later. And in my most recent post in October 2015 I gave a long term buy signal for bitcoin and also tipped ethereum. Ethereum has indeed grown into a strong contender in this space. You could pick up ETH for less than $1 when I wrote my piece and it traded just below $100 in the recent weeks. That’s a nice 100-fold increase in less than 2 years.
So, what’s next for bitcoin? Here is a long term chart:


Bitcoin has been climbing in a nice trend channel since 2015. BTC trades above $1700 as of today, so it looks like it’s going to test the upper boundary of the channel. A breakout above $1900 is possible and would start a blow-off phase like in 2013. But that remains to be seen.
On the downside, the $1000-1200 zone is major support that must be held. A drop below that zone would tell us that newer crypto currencies (possibly ethereum) are taking over, just like Google took over from Yahoo at some point. I still think that most altcoins will go to zero once a crypto currency becomes the clear winner in terms of linking real value and services within its coin.
The next upside targets for bitcoin remain at $2457 and $4246.

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LT wave for May

Posted by Danny on May 1, 2017

The Nasdaq has climbed to new record highs while the S&P 500 keeps sitting just below its March 1 highs. The Nasdaq gained 243 points in the recent lunar green period, making it the best green period since October. Let’s take a look at the current Nasdaq chart:

^COMP (Daily) 9_22_2015 - 4_28_2017

The sideways pause that started in March has clearly ended, allowing this index to break out above 6000. The Earl2 (orange line) has made a nice bottom and all 3 indicators are pointing up at the moment. That’s a bullish setup, but the faster Earl (blue line) and the MoM have reached fairly high levels already. I think we can get higher highs in the coming days, which would allow the S&P 500 to break above 2400. But with a new lunar red period getting started I think it will be followed by a bit of a pullback.

The LT wave had another good month in April. Here is the wave for May:


Projected strength in the first week of April only resulted in a sideways and was followed by a pullback in the expected weak period. The final week was stronger again, nicely in line with LT wave. Not bad.
For May we see a very similar pattern. A positive bias appears to continue until around the 9th and then we get a weaker period until the 23rd. The final week of the month is stronger again. The highest LT wave value will come on the 18th, in the midst of the weaker period. The lowest LT wave values come around 13-15, which contains a weekend. Another low value comes on the 21st, which is a Sunday. When markets are closed on the expected weak days then the weakness may or may not show up on the subsequent Monday. This could make this month more difficult to read.

For new readers, please remember that LT wave is experimental and after two very good months it is probably time for a miss. Always stay skeptical and do not drop skepticism because a method or indicator has had a few good months…

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LT wave for April

Posted by Danny on April 3, 2017

Markets had a good week and the Nasdaq is close to new all time highs already. The S&P 500 has been a bit weaker. The recent lunar green period has ended with a 14 point gain for Nasdaq. Not a big gain, but the lunar cycle seems to be getting back to its normal rhythm after a long period of “divergences”. Let’s have a look at the S&P 500 chart before discussing the LT wave for April:

^SP500 (Daily) 7_24_2015 - 3_31_2017

The market tested important support levels and veered back up. That’s a positive and it has printed bottoms in my Earl and MoM indicators, but the slower Earl2 (orange line) is still headed lower. A pattern of lower highs and lower lows appears on the chart and that’s something we haven’t seen for a while. The thing to watch in the current upswing is whether it can challenge the March 1 highs or not. A clear push above 2400 would tell us the bull run is ongoing.

The LT wave had an almost perfect month in March and here is how it continues for April:


The up and down swings corresponded very nicely to the expected weaker and stronger periods in March and if the LT wave keeps performing well then the current period of strength can continue until the 10th or 11th. Then there is projected weakness until the 23rd, followed by a more positive final week.
There will be a major high value in the wave on the 8th, but that’s a weekend day so any related highs would probably come on the Friday before or the Monday after. If that is the case then it will be interesting to see if the market can reach new records. A failure to do so would indicate that the path of least resistance is shifting down.
The lowest LT wave values for the month come on 22nd and 23rd, which are also weekend days. If the market falls below the March lows around that time it would also tell us that a more serious correction is underway.
For new readers, please remember that the LT wave is experimental and a good month doesn’t mean the next month will be good too. So, don’t bet the farm on it.

Good luck.

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