LunaticTrader

Investing with the Moon

Posts Tagged ‘Dow Jones Industrial Average’

Outlook for September

Posted by Danny on September 1, 2014

Stock markets have reached new highs last week. The S&P 500 has climbed above 2000 for the first time and now sits right at our Top target at 2004. Further gains appear likely, but September and October are two months with a rather bad reputation and that may prompt investors to take some profits.

Let’s have a look at the current S&P chart (click for larger image):

S&P 500

The recent price action is very similar to what we got at the start of 2014. After a sell-off the market has swiftly climbed to new highs. Based on the trend channel a further climb to 2050 is feasible. But we have just entered a lunar red period and the Earl and MoM indicators appear to have turned down already. So, I think the market will first try to digest the recent gains.

A similar outlook is seen in the LT wave for September (click for larger image):

LT wave

The wave did fairly well in August, marking the low early in the month and then climbing into a high on the 29th. Expected weakness in the middle of the month did not materialize.
For September the LT wave projects a period of weakness until the 20th, and a high on the 25th or 26th.

I have also updated the 1920s comparison chart (click for larger image):

dow_vs_1920s

The Dow Jones Industrials continues to mimic the price action of the 1920s very closely. We are now approaching the point where the market took off after almost a year of sideways consolidation. So, it will be interesting to see what happens.

Stay tuned,
Danny

 

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Key reversal levels for week of July 14, 2014

Posted by Danny on July 13, 2014

Our key tables and comments for this week :

* The FTSE100 index has gone into fully bearish mode, the first major market to do so. The DAX is weak as well, but still holding above its weekly key reversal level. Both are testing their Bottom1 targets already. The US markets have been stronger and remain bullish with upward MoM on the weekly level.

* In the daily key levels all major stock indexes are showing downward MoM, which means a pullback is underway. Is it the start of something bigger? That is always possible. Every bear market starts with one down candle and with one down swing. Right now there is no reason for panic, but if the US and Japanese market also drop below their daily key reversal levels, then the outlook for stocks will darken. So I wait and see.

* For the Nasdaq we have a new Top2 target at 4659.

* In other world markets the French CAC 40 has gone into bearish mode. Several other European markets are coming close to do so as well: Italy and Switzerland. New problems brewing in Europe? Hmmm, just old problems resurfacing… Weekly MoM has also turned down for the MSCI World index, marking a possible long term peak.

* Bonds (TLT) have bounced back, but weekly MoM keeps pointing down for the bond market.

* Gold is back to fully bullish. $1415 is the Top1 target if we get another leg upwards. Now it is becoming DO time for gold.

* The Euro is stuck around 1.36. Key levels are bearish for the Euro at the moment, but that doesn’t mean much in a market that has been going sideways for so long. A big move will come, but which way? Plenty of traders are probably looking to go long Euro on a breakout above 1.40, or to go short on drop below 1.34…, and that may or may not work, as fake out moves have become common. In a coiled market like this one I like to take a look at the monthly key levels for direction. Monthly MoM for $EURUSD is going down since May (it had been going up since August 2012) and a monthly close below 1.3264 would confirm the next major move is indeed down.

* Oil has dropped below its weekly key level and is now fully bearish. The Bottom1 target for oil is 94.60

* Our weekly key reversal levels for the 30 Dow stocks are available here. 28 stocks are bullish this week, up from 27 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

* A reader wrote me to tell how boring it is, e.g. my posts keep repeating “healthy bull market” for the Dow Jones week after week.
What to do? It is not as if shorting the Dow Industrials has been profitable in recent months. I can only repeat George Soros on that point: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
If the key reversal levels are boring it is actually a good sign, it means they are not pointing in a different direction every other week. And that can only mean we are getting good trending moves. E.g. the Nasdaq has been in weekly bullish mode for 79 weeks and counting. It doesn’t get any more boring than that. When we started posting them the weekly key reversal level for the Nasdaq was at 3221, now it stands at 4109, so that is 900 points of Nasdaq profit quietly locked in by our key levels. Meanwhile plenty of other analysts/bloggers have been trying to nail the top since the beginning of last year (if not before). I am sure they have not been bored. But how much have they lost by now (provided they trade their own calls)? 20%, 30%, more? By the time we actually do get a correction it will perhaps give them back half of the money they lost, or back to breakeven if they are lucky (provided they have not given up trading their own calls by then). That’s a big price to pay for being able to say “told you so”.
Some day our key levels will stop saying “healthy bull market”. Maybe next week, next month, next year… It will come.

***

Here are the updated tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,415.49 4,109.03 6.88 79 42.93
S&P 500 1,967.57 1,861.01 7.57 84 38.92
Nikkei 15,164.04 14,607.06 3.08 5 -0.26
FTSE 100 6,690.20 6,834.48 1.32 0 0.00
DAX 9,666.34 9,409.44 4.08 15 0.46
Bonds (TLT) 113.58 109.23 2.31 24 6.46
Gold (spot) 1,338.12 1,279.81 0.47 3 1.76
$EURUSD 1.3607 1.3729 -2.19 8 -0.60
Oil (CL) 100.83 104.15 2.36 0 0.00

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

7/11/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,415.49 4,342.43 3.49 35 6.76 2
S&P 500 1,967.57 1,948.25 3.24 35 4.20 2
Nikkei 15,164.04 15,128.86 1.04 36 5.22 2
FTSE 100 6,690.20 6,797.17 -2.79 3 -0.72 11
DAX 9,666.34 9,908.46 -3.60 3 -1.25 7
Bonds (TLT) 113.58 111.94 0.90 3 0.82 5
Gold (spot) 1,338.12 1,299.15 3.36 21 5.12 17
$EURUSD 1.3607 1.3643 -0.33 5 0.10 15
Oil (CL) 100.83 104.71 -5.52 5 -2.81 11

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4531 4659 * 3975 3742
S&P 500 2001 2031 1755 1641
Nikkei 15976 17220 13860 12940
FTSE 100 6800 7110 6642 6230
DAX 10240 10450 9682 8715
Bonds (TLT) 114.60 115.70 108.25 102
Gold (spot) 1415 1541 1160 1075
$EURUSD 1.3950 1.42 1.3403 1.2870
Crude Oil(CL) 109.24 112.47 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Good luck, Danny

 

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Key reversal levels for week of June 23, 2014

Posted by Danny on June 22, 2014

Comments for this week :

* Continuing bull markets in all major indexes. If the FTSE100 rises a little bit next week we will have a fully bullish picture for stocks again. When and where will it end? Nobody knows. Keeping an eye on the key reversal levels and MoM indicators will tell us when it is time to get out.

* In other world markets we have China as the only remaining bearish market. Gold stocks have also turned the corner and joined the bullish camp this week.

* Bonds (TLT) are stagnating. Can go either way at this point.

* Gold has turned fully bullish, and we can start looking for a possible move towards its Top1 target at $1424.

* The Euro is holding on to the 1.35 level and gave a speculative buy signal last Tuesday when daily MoM turned up. Euro may surprise to the upside and would probably pull gold up with it.

* Oil is digesting recent gains. A further climb towards 109-110 is in the cards as long as oil holds above its daily key reversal level.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 26 stocks are bullish this week, unchanged from 26 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,368.04 4,045.86 3.61 76 41.40
S&P 500 1,962.87 1,835.21 6.26 81 38.59
Nikkei 15,349.42 14,434.68 1.10 2 0.95
FTSE 100 6,825.20 6,709.16 2.59 7 0.04
DAX 9,987.24 9,339.75 4.83 12 3.80
Bonds (TLT) 111.80 108.87 3.82 21 4.79
Gold (spot) 1,314.27 1,269.95 -1.72 0 0.00
$EURUSD 1.3596 1.3756 -2.13 5 -0.68
Oil (CL) 106.83 100.29 2.41 18 6.70

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

6/20/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,368.04 4,256.75 5.18 21 5.61 17
S&P 500 1,962.87 1,927.11 4.55 21 3.96 1
Nikkei 15,349.42 14,844.17 4.60 21 6.51 1
FTSE 100 6,825.20 6,830.73 -2.57 5 0.70 24
DAX 9,987.24 9,880.09 0.83 42 4.01 1
Bonds (TLT) 111.80 112.48 -1.07 13 0.04 8
Gold (spot) 1,314.27 1,264.53 4.65 6 3.25 1
$EURUSD 1.3596 1.3646 -1.52 30 -1.10 12
Oil (CL) 106.83 103.59 6.25 27 4.83 2

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4390 4531 3975 3742
S&P 500 1950 2031 1755 1641
Nikkei 15650 17220 13860 12940
FTSE 100 6800 7110 6677 * 6230
DAX 10240 10450 8715 8510
Bonds (TLT) 114.60 115.70 108.25 102
Gold (spot) 1424 1541 1160 1075
$EURUSD 1.3950 1.42 1.3403 * 1.2870
Crude Oil(CL) 109.24 109.97 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Stay tuned, Danny

 

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Key reversal levels for week of June 2, 2014

Posted by Danny on June 1, 2014

Comments for this week :

* After a strong week in the stock markets we remain with a fully bullish picture and upward weekly MoM for most major indexes. A pullback will start eventually, and stagnating MoM in the daily keys will normally offer us the first clues when the current rally is nearing an end. Right now it says: all clear.

* Just repeating what I said last week: it is always hard to tell how far a move will carry… best is to go with the flow and respond when the situation changes again. Today’s daily key reversal table shows what happens when we go with the flow: all signals profitable (blue), 1-4% profits within days or weeks. There is no need to predict the top, the system will automatically tell us that some kind of top is in when a given market closes below its key reversal level. Why is following trends so hard to do when it appears so simple? A: Our ego wants to forecast, not follow. Ego wants to buck the trend.

* In other world markets there are no major changes this week. I notice that MoM is turning up for the Russell 2000 index. That doesn’t mean the pain is over for the small caps, but it increases the odds that we will get a rebound rally or a sideways period. A weekly close above 1147.64 would put Russell 2000 in the bullish camp again..

* Bonds (TLT) continue to hesitate near their Top1 target at 114.60.

* Gold tried hard, but has finally succumbed and closed below its weekly key level after 14 weeks of trying the upside. We have been telling for months that gold would go the way of the Euro. Both are in weekly bearish mode now. Will it be a short venture, or the start of a lengthy bear move? I don’t know.

* The Euro appears to be fighting back at the 1.36 level and has its daily MoM turn up from rather low -5 level. That offers some short term hope for both the Euro and for gold. But we have to see if they can claw their ways back above their respective daily key levels.

* Oil price is sputtering as well. It was once again rejected at its long standing Top1 target at 104.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 26 stocks are bullish this week, up from 25 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks. Note: this most simple indicator has been saying “healthy bull market” since the middle of April, when the number of bullish stocks climbed above 20 again. Goes to show that investing doesn’t have to complicated.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,242.62 4,000.92 -0.33 73 37.34
S&P 500 1,923.57 1,813.69 3.84 78 35.81
Nikkei 14,632.38 14,841.67 -1.72 11 2.65
FTSE 100 6,844.50 6,677.06 2.58 4 0.32
DAX 9,943.27 9,237.00 2.67 9 3.34
Bonds (TLT) 114.10 108.30 5.42 18 6.95
Gold (spot) 1,249.42 1,319.66 -1.09 0 0.00
$EURUSD 1.3630 1.3807 -0.43 2 -0.43
Oil (CL) 102.71 99.21 1.15 15 2.59

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

5/30/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,242.62 4,138.35 5.31 6 2.58 1
S&P 500 1,923.57 1,886.58 4.66 6 1.87 1
Nikkei 14,632.38 14,342.57 5.37 6 1.54 13
FTSE 100 6,844.50 6,781.74 1.42 26 2.43 1
DAX 9,943.27 9,705.24 6.17 27 3.55 1
Bonds (TLT) 114.10 112.11 4.37 37 4.90 1
Gold (spot) 1,249.42 1,289.47 -3.93 3 -1.20 11
$EURUSD 1.3630 1.3717 -5.25 15 -0.85 28
Oil (CL) 102.71 101.63 4.23 12 0.79 2

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4390 4531 3975 3742
S&P 500 1950 1755 1641
Nikkei 15650 17220 13860 12940
FTSE 100 6800 7110 6230 5980
DAX 10240 8715 8510
Bonds (TLT) 114.60 115.70 102 96.25
Gold (spot) 1424 1541 1185 1075
$EURUSD 1.3950 1.42 1.3366 * 1.2870
Crude Oil(CL) 104 109.24 * 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Good luck, Danny

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Key reversal levels for week of May 26, 2014

Posted by Danny on May 25, 2014

Comments for this week :

* In the weekly key reversal levels for major stock indexes we have momentum (MoM) turning up for the Nasdaq and Nikkei. This means all major markets are trying to push higher again.

* On the daily level markets have turned to bullish mode as well. It is always hard to tell how far a move will carry. Best is to go with the flow and respond when the situation changes again.

* In other world markets the Hong Kong and Russian indexes are turning bullish. This leaves only a few countries with bearish setups.

* Bonds (TLT) are hesitating since they reached their Top1 target at 114.60. Money may start flowing back into stocks and that would weigh on bond prices going forward.

* Gold is not moving at all recently. It remains mildy bullish in our key reversal system,  but it wouldn’t take much to turn it fully bearish. A big move is likely so I am watching the key levels carefully on this one.

* The Euro has gone fully bearish. Needs a weekly close above 1.3829 to get in the bullish camp again.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 25 stocks are bullish this week, up from 24 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,185.81 3,990.47 -1.25 72 35.50
S&P 500 1,900.53 1,807.91 3.23 77 34.19
Nikkei 14,462.17 14,852.38 -2.17 10 1.46
FTSE 100 6,815.80 6,653.81 2.09 3 -0.10
DAX 9,768.01 9,205.97 1.75 8 1.52
Bonds (TLT) 112.70 107.89 5.16 17 5.64
Gold (spot) 1,292.41 1,280.24 -0.60 14 -1.95
$EURUSD 1.3628 1.3829 0.31 1 -0.45
Oil (CL) 104.35 98.86 0.99 14 4.22

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

23/05/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,185.81 4,091.34 1.34 2 1.20 1
S&P 500 1,900.53 1,874.22 0.97 2 0.65 1
Nikkei 14,462.17 14,148.00 -1.26 1 0.35 13
FTSE 100 6,815.80 6,767.96 1.25 22 2.01 2
DAX 9,768.01 9,570.23 2.33 22 1.73 17
Bonds (TLT) 112.70 111.56 2.52 33 3.61 2
Gold (spot) 1,292.41 1,286.13 -0.41 7 -1.01 6
$EURUSD 1.3628 1.3769 -5.37 10 -0.87 27
Oil (CL) 104.35 101.19 5.11 8 2.39 1

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4390 4531 3975 3742
S&P 500 1870 1950 1755 1641
Nikkei 15650 17220 13860 12940
FTSE 100 6800 7110 * 6230 5980
DAX 9800 10240 8715 8510
Bonds (TLT) 114.60 115.70 102 96.25
Gold (spot) 1424 1541 1185 1075
$EURUSD 1.3950 1.42 1.3390 1.2870
Crude Oil(CL) 104 109.80 94.60 91.85

(* = new or updated target ) (for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Good luck, Danny

 

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Key reversal levels for week of May 12, 2014

Posted by Danny on May 11, 2014

Comments on the key levels for this week :

* Little change in our weekly key levels for major stock indexes. For Nikkei we have MoM turning down, which indicates a continuation of bearish mode, now in its 8th week.

* On the daily level the Nasdaq and Nikkei remain in bearish mode, while the DAX is back to fully bullish. The FTSE100 is once again stagnating near its Top1 target at 6800.

* In other world markets Hong Kong is turning bearish on the weekly level.

* Gold tried to go into rally mode, but quickly dropped back and ended the week barely above its weekly key reversal level. A weekly close below $1280.53 would turn this market fully bearish again.

* The Euro also tried to break out to the upside and was pushed back immediately, ending the week just above its key reversal level. As we have been telling for weeks, the next major move of the Euro will also decide the next move in several other markets like gold. So, we keep watching.

* Our weekly key reversal levels for the 30 Dow stocks are available here. 24 stocks are bullish this week, up from 23 last week. Above 20 is healthy, see : Keeping an eye on the Dow stocks.

***

Here are the tables.

Key reversal levels for next week:

Weekly Current Mode Key (W) MoM (W) Weeks % Ch.
Nasdaq 4,071.87 3,983.33 -1.48 70 31.81
S&P 500 1,878.48 1,800.68 2.82 75 32.63
Nikkei 14,199.59 14,933.43 -2.21 8 -0.38
FTSE 100 6,814.60 6,604.04 0.61 1 -0.11
DAX 9,581.45 9,163.70 0.79 6 -0.42
Bonds (TLT) 111.24 107.16 4.73 15 4.27
Gold (spot) 1,288.30 1,280.53 0.01 12 -2.27
$EURUSD 1.3759 1.3693 1.52 41 3.59
Oil (CL) 99.99 98.43 1.20 12 -0.13

(Legend: Mode: green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Latest daily key reversal levels:

5/9/2014 Current W Mode Key (D) MoM (D) Days % Ch. Str. #
Nasdaq 4,071.87 4,135.91 -1.29 33 -4.25 7
S&P 500 1,878.48 1,864.56 1.11 16 0.90 2
Nikkei 14,199.59 14,464.57 -1.83 20 -1.64 15
FTSE 100 6,814.60 6,706.09 6.23 12 1.99 18
DAX 9,581.45 9,433.41 1.59 12 -0.22 17
Bonds (TLT) 111.24 110.69 3.91 23 2.27 2
Gold (spot) 1,288.30 1,306.39 -0.25 2 -0.12 7
$EURUSD 1.3759 1.3882 1.59 0 0.00 35
Oil (CL) 99.99 101.45 -2.85 10 -0.50 8

(Legend: Mode : green = bullish, pale green = weak bullish – may have peaked, red = bearish, pink = mildly bearish – may have bottomed | Key: key reversal level | W = weekly mode | for more details about these key levels, see: https://lunatictrader.wordpress.com/key-reversal-levels/ )

Our current key target zones (we use a +/-1% zone around these targets):

Key Targets Top1 Top2 Bottom1 Bottom2
Nasdaq 4390 4531 3975 3742
S&P 500 1870 1950 1755 1641
Nikkei 15650 17220 13860 12940
FTSE 100 6800 7250 6230 5980
DAX 9800 10240 8715 8510
Bonds (TLT) 111.80 114.60 102 96.25
Gold (spot) 1424 1541 1185 1075
$EURUSD 1.3950 1.42 1.3390 1.2870
Crude Oil(CL) 104 109.80 94.60 * 91.85

(* = new or updated target ) (for more details about these key targets, see: https://lunatictrader.wordpress.com/2013/08/20/key-target-levels/ )

Good luck, Danny

 

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Can we avoid Dow 32000?

Posted by Danny on March 10, 2014

Stocks reached new record highs last week, right at the end of our lunar green period. That marks the first solid green period in quite a while and suggests that normal lunar cycles are coming back. I think we will see a pullback in the current red period, but probably not as deep as many traders expect.
Let’s have a look at the S&P 500 (click for larger image):

S&P 500

Last week’s high could mark an important top for the market. It depends how much of a downturn we see in the next week or two. If the pullback is mild then a push above 1900 is in the cards for the end of March. My technical indicators give a mixed message with the Earl2 showing no signs of peaking out yet. So there is further room to rise, but I think the overhead resistance levels around 1900 and 1940 will prove to be a tough barrier. April is likely to become interesting as it will be a month with eclipses. More on that in next week’s post

***

With the month of February behind us I have updated the comparison chart with the 1920s. When I first posted this chart in June last year it looked like a very remote scenario. But the case for Dow 32000 has held up unexpectedly well. One of the main conditions to keep this scenario viable was for corrections to be very shallow. That has been the case in 2013. Now it remains to be seen if the Dow Industrials can push above 17000 later this year. That’s the second condition for this scenario to remain on the table.

Here is the updated comparison chart (click for larger image):

comparison with 1920s

The correlation remains very high, and already started well before the bottom of the bear market. This correlation in itself is nothing remarkable, as it is always possible to find stretches of market action that look very similar. But what we have here is that the market circumstances were also very similar to the current ones. I have marked the major phases in the chart (1 to 4).
The 1920s started with a deflationary depression which was followed by a long period of ultra low interest rates with the Fed expanding its balance sheet. We have been going through the same playbook and have now arrived at the point that corresponds to August 1926. At that point the stock market started sputtering and in 1927 the US experienced a mild recession. In 1928 the Fed finally started raising rates. Instead of pushing the stock market down this marked the start of the blow-off phase with stocks almost doubling in the next 18 months. So much for “don’t fight the Fed”.

Could this happen again? I would rather ask: can it be avoided? If we continue along the same trail, then look for the economy to sputter in 2014 and that will keep interest rates near zero for the rest of the year. In 2015 the Fed will start tightening and that will cause stocks to break out to the upside. Why to the upside? Bonds inevitably go down when interest rates go up. This causes some money to flow out of bonds and into stocks (which look “safe” again in the eye of retail investors) and is a process that can start feeding on itself uncontrollably. At that point a disaster is inevitable.
In trying to avoid another great depression the Fed will then have managed to set the stage for one.

What would it take to write down this scenario? If the Dow drops below 14000 in 2014 then the odds would become very small.

Stay tuned,
Danny

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Keeping an eye on the Dow stocks

Posted by Danny on January 27, 2014

Weakness in stock markets is evident now. I already warned last week not to trust the current lunar green period, because some important targets have been reached and too many of my indicators are flashing warning signs. With a lunar red period coming up in early February there may be more downside action in store.

This week I will take a look at the Dow Jones Industrials Index. In a post last July ( Why Dow 16000 will be sold ), I presented a number of target calculations that pointed to 16400 (+/- 200) as a major level where selling was likely to kick in. While we didn’t reach that target in August, the Dow rose to a record 16588 in late December and is now pulling back below the 16000 level.
Here is an up to date chart for the Dow Jones (click for larger image):

Dow Jones Industrials

The Dow is coming close to the early December lows, where some support is to be expected. I think we will see an attempt to regain the 16000 level this week, but the more important test will come in February. Will the January lows hold or not? If the market breaks lower then we can start watching for the 15000 level.

I am showing the Dow index this week, because I want to share a little method that can keep you at the right side of the market most of the time. The weekly key reversal levels for the 30 Dow stocks, which shows what stocks are bullish (green) or bearish (red), is a good indication for the general health of the market. I post them on my Twitter account every weekend. This is the current situation for the 30 stocks in Industrials average:

Dow stocks

Six stocks have gone bearish last week, leaving now only 17 Dow Industrials stocks with a bullish setup on the weekly level. This is the lowest number of bullish stocks since December 2012. We got several pullbacks in 2013, but the number of bullish stocks in the Dow never dropped below 20. The current downturn appears to be of a more serious nature. The market will have to turn up really quickly, otherwise we will soon have more bearish stocks in the Dow than bullish ones, and that would imply the start of a bigger correction.

For a better perspective, this chart displays the number of bullish stocks on the Dow since 2012 (click for larger image):

Dow bullish stocks

Generally speaking we have a healthy bull market when 20 or more Dow stocks are bullish. When less than 15 stocks are bullish we are in a correction if not a bear market. For a conservative investor, a good way to stay out of trouble is to go underweight stocks when the number of bullish stocks in the Dow drops below 20 (or buy some options for protection), and get out completely when the number drops below 15. Then, get back into stocks when the number of bullish Dow stocks climbs above 20 again.

This chart shows how that basic approach would have done in the 2007-2009 bear market (click for larger image):

Dow bullish stocks 2007-

As the market started going down from record highs in 2007, the number of bullish stocks quickly fell below 20, and by early 2008 it dropped below 15. So, that was a clear sign to get out. It briefly rose back above 20 in May 2008, so one would have bought at that point. But that didn’t last long and soon the number of bullish stocks was back below 15, so out of the market again. In April 2009 the number of bullish stocks rose back above 20, and this proved to be a more profitable buy signal.

It is a simple method and only takes a few minutes per week. It isn’t perfect, but one can use it to avoid the major pitfalls and will always be on board whenever there is a strong bull market.

Good luck,

Danny

 

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1920s again

Posted by Danny on January 14, 2014

A quick update of the chart I first presented last June, and in an updated version last August.

It is now updated for monthly Dow closes until December 2013 (click for larger image):

dow vs 1920s

The correlation with 1920s bull market remains very high, and has actually increased again since the August update. The correlation is now up to 0.876
Not only that, the level of the Dow Jones Industrials is almost exactly where it was at this stage in the 1920s.

If it continues this way, then the market will go through a shallow correction with a summer bottom and then recover by the end of the year before bursting higher in 2015 and 2016. At that point it will be too late for the central banks to stop the disaster.
This is the danger of “perpetual” zero interest rates: it makes bonds completely unattractive to hold for the long term, so too much money starts flowing into stocks and it becomes like a runaway train. P/E levels can easily reach 25 or 30 before everything is said and done.

What could be done to stop it?
Stop QE before the summer and raise short term interest rates to 2% or more. This will probably cause the stock market to drop to 12000 or even 10000, but that’s better than setting up for a repeat of the 1930s.

Good luck,

Danny

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Testing the Jupiter cycle in stocks

Posted by Danny on November 17, 2013

A reader mailed me, criticizing my recent post Questioning Financial Astrology , in which I pointed out the problems with using longer term cycles. He is convinced that Jupiter cycle does work in the market and pointed to a post by Raymond Merriman, in which the Jupiter cycle gets mentioned.

Quoting the relevant part:

Historically, bull markets in stocks have topped out when Jupiter transited between 23° Aries and 7° Taurus (May-July 2011, and then October 2011-March 2012), followed by at least 20% declines. In cases where Uranus and Pluto have been in hard aspects, the rallies continued until Jupiter reached the sector of 14-24° Gemini (August-October 2012, and then April-May 2013). If you look at the chart of the Dow Jones Industrial Average, you will see that the largest declines of the past three years did occur from peaks in those time bands. But none reached 20%, or even the 48% that would normally be expected, because of “… the largest financial markets intervention by any government in world history.”

I have nothing against Merriman, like most astrologers he is probably trying hard to make it work, but basically he is blaming QE for his Jupiter cycle not working as expected. I think it would be more useful to consider the possibility that this Jupiter cycle doesn’t work. After all, even the best of methods only work 60% of the time, and even the best market “gurus” have it right about 60% of the time, as you can see here.
So, Jupiter should be allowed some mishits as well, that’s OK. Trying to put blame on QE for some astrological cycle not working makes financial astrology look worse rather than better.

But let’s have a look at the mentioned Jupiter cycle. Is it true that bull markets have a historic tendency of topping out when Jupiter transits between 23° Aries and 7° Taurus, followed by at least 20% declines? (and “normally” 48% according to this article)?

Well, that’s fairly easy to test. I used Dow Jones data and looked for all the tops after at least 20% advances from a major low, and for bottoms after declines of 20% or more from previous peak. That’s the standard definition for bull and bear markets. This can be done easily with the so-called “zig-zag indicator”. Here is the list of all bull market tops with the corresponding geocentric longitude (0 – 360) of Jupiter next to them:

Peak Date | Jupiter longitude
—————————–
* Jun 1901: 280
* Jan 1906: 56
* Nov 1909: 188
* Sep 1912: 247
* Nov 1916: 27 *
* Sep 1929: 75 *
* Sep 1932: 159
* Mar 1937: 290
* Nov 1938: 324
* May 1946: 198
* Nov 1961: 302
* Feb 1966: 81 *
* Dec 1968: 184
* Jan 1973: 293
* Sep 1976: 60
* Aug 1987: 29 *
* Jan 2000: 25 *
* Oct 2007: 257

We see a few tops falling within the sectors mentioned in the article (marked with a *), but 5 out of 18 is not statistically significant as that can easily be the result of normal random variation. These sectors appear to be just hand picked with the benefit of hindsight.

I also looked at the main bull market peaks in the 19th century, based on reconstructed monthly Dow Jones data, which is accurate enough for this test:

* Apr 1795: 303
* Oct 1800: 123
* Aug 1806: 268
* Feb 1810: 20
* Aug 1835: 99
* Dec 1852: 250
* Feb 1874: 181
* Jun 1881: 47
* May 1890: 311

None of the peaks fell in the mentioned sectors. A few are in the neighborhood, but that falls within normal expectation as well.
All we can conclude is that there is no evidence for a Jupiter cycle at work as far as these bull market peaks go.

If you randomly distribute 20 or 30 points on a circle then you will naturally get a few clusters where several points are close together. Here that’s the case in the sector 23 – 37 (23° Aries to 7° Taurus), but also at 180 – 190 (0° Libra to 10° Libra) and 300 – 324 (0° Aquarius to 24° Aquarius). That is no reason to expect a bull market peak whenever Jupiter transits these parts of the sky again.

Out of 20 observed Jupiter cycles since 1790, the market has peaked (and subsequently declined 20% or more) 3 times when Jupiter passed between 23° Aries and 7° Taurus, and another 2 times the market peaked when Jupiter crossed the sector of 14-24° Gemini. But that also means the market did not peak and decline on the other 15 occasions when Jupiter crossed that part of the sky.
That means QE is not to blame for this. The described Jupiter cycle has failed to produce expected bull market peaks on 15 earlier occasions, when there was no QE at all. It actually has only “worked” 5 times in 200 years.

It is what it is. I think financial astrologers would do well to start discarding the cycles that clearly do not work in the market, and then perhaps they will be left with a few things that do work. Finding an edge in cycles is never easy.

Good luck,
Danny

 

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