US stock markets have started to slide. It’s not that we have not been warning in recent weeks, as all my indicators have been pointing down. I could actually repost my March 24 outlook and be done for this week. But that would not be interesting and I have some new charts and information, so let’s start by taking our weekly look at the S&P 500 (click for larger image):
Bearish divergences are now even more clearly visible in all my indicators. The 1800 level is very important for the S&P. If that level doesn’t hold then a drop to the 1600-1700 area can come really quick. So we better be careful. Yes, a crash is possible when such a long term trend line gives way. As we have pointed out before, eclipse red periods have a history of producing sharp downturns and this time is no exception. We remain in lunar red period until the end of this week and I expect some bottom to form soon. The ensuing eclipse green period usually brings a strong rebound, so be ready to do some speculative buying on down days. If the S&P holds the 1800 level this week then it can even surge back to 1900 by May. We will study that scenario next week, before the green period gets underway.
I notice on social networks that some investors are thinking that a stock market crash will cause gold and gold stocks to surge higher. So, should you buy gold in anticipation of a possible crash? Well, based on history the answer is: no. Just looking at some of the most famous recent crashes:
* October 1987 crash, gold price: $455 -> 3 months later: $480, 6 months later: $445, 1 year later: $396.
* Mar-May 2000 (Tech crash), gold price: $293 -> 3 months later: $272, 6 months later: $277, 1 year later: $266.
* Aug-Nov 2008 (Nasdaq drops 50%), gold price: $912 -> 3 month later: $730, 6 months later: $918, 1 year later: $960.
Buying gold as protection for a stock market crash doesn’t look like a good idea. The reason is not hard to guess: a stock market crash has deflationary effects and causes some investors to liquidate other assets (like gold) to avoid bankruptcy or margin calls. The better strategy is to buy gold 3 months to 1 year after the start of a stock market crash.
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As a little extra this week I have a few other charts to share. There is an interesting market fractal appearing in the S&P 500 index. The S&P market action since late 2010 looks exactly like the movements between April 2013-January 2014, as you can see in this comparison chart (click for larger image):
I have numbered the major turning points. In both cases we see a rising wedge pattern(1-6) followed by breakout to the upside(7) and a revisit of the resistance line that has turned into support(8). Then a further rise and congestion period(9) leading to a flat topping pattern(10-12). This is as good a market fractal as you will ever see. And we already know how the pattern has continued in the ensuing months. If the fractal continues to hold up then we can look forward to this scenario (click for larger image):
From the topping area(12) we got a quick drop that found initial support on the old trend line and then dipped even lower to bottom out at the level where it broke away from the old rising wedge(13). And then a surge to new all time highs with another broad topping formation (14-16).
Will this pattern repeat? I don’t know. Bear in mind that this kind of market fractals cannot work forever, so it is more a question when and where will the market break away from this pattern and especially: how? But as long as it is in play it is a scenario worth watching. Right now it suggests a summer 2014 low around 1500 and a final market top in 2015 with the S&P 500 climbing above 2000…. and then a real crash. Well, why not?
Good luck,
Danny
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Equinox eclipses and the stock market
Posted by Danny on March 9, 2015
The Nasdaq is falling back a bit after climbing above the psychological 5000 mark. Readers of this blog were probably not surprised by that move, as we have been calling for it weeks ago. We will be ending the lunar red period today, and then we will see if the market can go even higher in the next lunar green period. It will be a very unusual eclipse green period. More on that later in this post, let’s first have a look at the Nasdaq chart (click image to enlarge it):
The Nasdaq has gone mostly sideways in recent weeks with a few spikes reaching for 5000. This could be setting us up for a further climb towards 5200 in the coming weeks. Technically the Earl indicator (blue line) is now in bottom territory getting ready to turn back up, while the slower Earl2 (orange line) is still climbing but starting to flatten out a bit. This allows for another push higher in the upcoming green period.
A failure to get another rally going would not bode well and signal that we are starting a broader market correction. A drop to 4800 support level would still be OK, but any deeper drop would spell bigger trouble. We just watch and respond. The bull market scenario remains intact until it doesn’t. The most common mistake in investing is to call for a top too early, as countless analysts have experienced once again in the recent years.
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As I mentioned in the introduction, we are heading into an eclipse green period. For readers who are new to this blog, check out my more extensive article about Eclipses and the Stock Market. Basically the lunar green periods that contain a solar eclipse have a history of being very positive for stocks. That’s why a surge to new records is definitely possible. But it is not guaranteed.
The upcoming solar eclipse of March 20th will fall within a day of the spring equinox, and that is very rare. The last time a solar eclipse fell more closely to a spring equinox was in the year 1681. I did a little study on equinox eclipses (considering both the spring and autumn equinox) and here is what I found.
In the last century we had only two of them: September 1968 and September 1987. In both cases the equinox eclipse came within months of an important peak, just before a major bear market started. Here is the S&P monthly chart showing the 1968 equinox eclipse with a red diamond(click image to enlarge it):
It marked the end of a 20 year bull market, and the S&P declined 35% in the next few years. Market kept going sideways for more than 10 years until the great bull market of the 1980s got underway.
The next equinox eclipse was September 1987 and came just before the famous crash (click image to enlarge it):
That were the only two equinox eclipses in the 20th century.
We got another equinox eclipse in September 2006. In this case it was once again near the end of a multi-year bull run. But it came a year before the eventual top, so the timing was not as good. A serious bear market followed, as most of us remember all too well. And now, March 20th will give us the next one. (click image to enlarge it):
Once again the market has been climbing for years. Will the equinox eclipse of March 2015 mark another major top? Time will tell, but the technical setup is now very similar to the one we had in 2007. We see a bearish divergence in the Earl (blue line) and the slower Earl2 (orange line) has just turned down. Once the up trend line that started in 2009 gets broken to the downside we are quite likely to see a serious drop.
As if that is not enough, later in 2015 we will also get the visit of Solar Saros 125, which has a history of producing financial panics going all the way back to the tulip mania in 1637. See my article: The Saros cycle and the stock market.
Warning: with only a few observed cases we better remember that the law of small numbers applies. So, these bear markets that came on the heels of equinox eclipses can be the result of coincidence. I don’t give any guarantee that it will “work” again. Don’t bet the bank on it. It is just a hypothesis I am passing on.
Equinox eclipses tend to come in clusters (for reasons that exceed the scope of this article). We have seven more coming up in the 21st century: 2025, 2033, 2034, 2052, 2053, 2071, 2072. So, there will be more chances to see if this tendency keeps up.
Good luck,
Danny
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Posted in Financial Astrology, Market Commentary | Tagged: Eclipse, equinox, equinox eclipse, lunar cycles | 2 Comments »