LunaticTrader

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Posts Tagged ‘LT wave’

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:

ltwaveMay2017

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:

ltwaveApr2017

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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LT wave for March

Posted by Danny on March 1, 2017

The market has drifted sideways in the recent week and we are now going almost 100 trading days without a 1% down day in the S&P 500. That’s already the longest such streak since 1995. It will be interesting to see if this move joins the 100 club. Let’s have a look at the current S&P 500 chart:

sp500-daily-6_3_2015-2_28_2017

The rally that started in November keeps going and there is no clear sign yet that the advance may be over. The MoM indicator stays in the +8 euphoric zone, but it has turned down which means we can do some first selling at this point. If MoM drops below +8 then do some more selling. See last week’s article.
The Earl (blue line) has turned down, which suggests a pullback is coming up. But maybe it will be no more than a few days hiccup before stocks climb to another record. There is no way to tell at this point, we just need to be aware that this market can suddenly go into blow-off mode here. Such a move becomes very difficult to read in its final stages, and traders who find themselves on the wrong side of it are typically given little or no chances to get out without significant losses.

The LT wave for March doesn’t paint an easy picture either:

ltwavemar2017

The LT wave for February was partially successful. After some hesitation in the first week stocks surged to new records in the expected strong period until the 15th. The next expected weak period didn’t produce any decline and the final days saw new records again.
For March there is a peak value on the 1st followed by projected weakness until the 10th. Then a strong period until the 15th or 16th. A second weak period is expected until the 27th.
The lowest LT wave value of the month comes on the 7th, with a second low on the 27th. Peak values come on the 1st, 13th and 29th.

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LT wave for February

Posted by Danny on February 1, 2017

Markets climbed to new all time highs last week and the Dow finally got above the 20k level for the first time. But stocks appear to be pulling back from those new highs and that means we have to consider scenario two I described in my recent Dow 20k post. A sharper pullback could be in the making here.
Let’s start with the current Nasdaq chart:

comp-daily-6_8_2015-1_31_2017

The Nasdaq has outperformed the S&P 500 in recent months and is climbing within a narrowing wedge. That is always a dangerous setup, with or without Dow 20k, and is prone to a sudden drop once the high rate of change cannot be kept up.
The bearish divergence remains in my Earl indicator (blue line), while the slower Earl2 (orange line) has marked time by going sideways. This is typical for a market that has stretched itself out and up as far as possible, and that in itself is as dangerous as climbing inside a wedge.
The Nasdaq gained 41 points in the recent lunar green period and we are now starting a new red period. The setup suggests that we will finally get some downside action in a red period. A drop below 5550 would confirm this scenario.

I would remain cautious at this point and take some profits or at least keep stops very close to the market. A further climb is not impossible with this setup, but the odds are not good and the risk/reward ratio stinks.

To finish we have the LT wave chart for February:

ltwavefeb2017

The wave did a poor job in January, climbing higher when the wave suggested weakness and merely drifting sideways during what was supposed to be the stronger period. I have not seen this kind of “inversion” in the LT wave chart before, so I don’t know what it means (if anything).
The second peak on the 28th came close to the highs of the month and maybe that marks the return of normal cycles. If so, then market weakness should continue until the 8th and be followed by a brief period of strength until the 15th. The remainder of February is also weak, except for the last couple of days.
As always, this LT wave is experimental so don’t bet the farm on it.

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LT wave for January

Posted by Danny on January 3, 2017

Stocks had rather flat end of year trading with some weakness surfacing in the final days of December. The lunar green period produced a 54 point loss in the Nasdaq, a fitting close to a year which has been difficult for lunar cycle trading. More on possible reasons for this bad year and when “normal” cycles may return in a later article. Let’s first have a look at the current Nasdaq chart:

comp-daily-5_21_2015-12_30_2016

As I reported a few weeks ago, my indicators appeared stretched and a choppy ending to the year would be healthier than an ongoing surge to new highs. All my indicators are now coming down, including the slower Earl2 (orange line). This means the overbought situation is slowly getting worked off. But none of the indicators is showing any signs of bottoming out at the moment, so I would be patient here. Chances are we will see further downside action before we get an attractive setup to enter new longs.
We are also starting a new lunar red period and perhaps we are due for a normal cycle. The technical setup looks right for it. If we do get an early new year drop then Nasdaq 5250 becomes first target and just above 5000 if things turn ugly.

The LT wave for January also points to early weakness:

ltwavejan2017

The wave for December did OK, not perfect. The expected weakness in the 2nd week did not pan out, but the neutral/flat trading for the rest of the month came true. Highs in the S&P came close to noticeable peaks in the LT wave on the 12th and 20th.
For January the wave projects weakness in the first week with a low value on the 4th. Then a strong period from around the 11th until 21st with a major peak value on the 17th. Last 10 days of the month are weaker again.
As always, don’t bet the bank on this. The LT wave is purely based on natural cycles and doesn’t use any market inputs.

As a final extra I want to point to the number of bullish stocks in the S&P 500. This is a chart I also post on Twitter from time to time, e.g. Dec 7. In a healthy bull market the number of S&P 500 stocks in bullish mode (based on my reversal levels method) is well above 250 (50%). In the beginning stages of a market advance the number of bullish stocks normally goes above 400 (80%) and stays above 300 during minor pullbacks. Once the number of bullish stocks drops back below 300 a deeper correction could be starting. This is the current situation:

spx

The number of bullish stocks did climb above 400 on Dec 12, but has since come back down and is now at 278. This means a lot of stocks and sectors are already quite bearish and only a small majority of stocks remains in bullish mode. Maybe this is just year end profit taking… Or the market is about to turn lower. We will find out soon.

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LT wave for November

Posted by Danny on October 31, 2016

Stocks came under some pressure last week and the S&P 500 is struggling to stay above the important 2120 support level. As we pointed out last week, price action has been weak and there is nothing going on as long as there is no clear breakout, up or down. We are still in that situation but now my indicators are starting to turn down, suggesting that a breakout to the downside is gradually becoming the more likely scenario. Here is the current Nasdaq chart:

comp-daily-2_5_2015-10_28_2016

Earl and MoM indicators have turned down after a very weak rally attempt and the slower Earl2 is languishing at low levels, apparently unable to get back above the zero line. The lunar green period will be ending later his week and it looks like we will be lucky if it ends near breakeven for the period. This suggests the path of least resistance is down.

Looking at the LT wave chart for November offers more reason for caution:

ltwavenov2016

We got the expected weakness in the first half of October, but the positive bias after the 15th was very weak. Most of the peak LT wave values happened to come on weekend days when markets are closed, but the other days didn’t produce any convincing green candles either.
Going into November the wave tries to hold up in the first days, but then shows a drop with weakness to continue until around the 17th. The rest of the month is hardly above neutral. The lowest LT wave value for the month comes on the 10th, and the high is projected for the 19th.
Does this mean the market will crash? No. Does this have anything to do with the upcoming US election? No. Four years ago when Obama was re-elected the S&P 500 dropped 6% in the next two weeks. I guess that whoever wins the election, some half of the population will be disappointed and may see it as a good reason to sell stocks. Everything is possible and there is no guarantee whatsoever that the projected LT wave pattern will pan out.

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LT wave for October

Posted by Danny on October 3, 2016

An up and down week for S&P 500 ended with little change for the week and the month. Major indexes are once again close to new all time highs.
The direction of the next significant swing is still very uncertain. Here is the current S&P 500 chart:

sp500-daily-1_20_2015-9_30_2016

A push to record highs looks quite likely, but a new lunar red period will start later this week. The Earl indicator (blue line) is flattening out, but the slower Earl2 (orange line) keeps pointing up. It is an indecisive picture. The LT wave for October isn’t very clear either:

ltwaveoct2016

The wave did quite well in September, with the market peaking early in the month and a clear period of weakness from the 6th until the 25th.
For October another period of weakness is projected to start around the 4th. After the 15th there is more strength but it could come with high volatility.

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LT wave for September

Posted by Danny on September 1, 2016

Markets have been trading without any direction recently, and with the end of the month coming up I have postponed my weekly blog post by a few days to get out the new LT wave chart today.

When stocks move in such a narrow range there is of course little or no space for the lunar cycles to show up. But it still worked out quite well. Here is the LT wave chart for September, also showing what we got in August:

ltwaveSep2016

Expected strength in early August showed up right on time and did push the S&P 500 to new record highs. Taking profits on the 5th or 8th, as we suggested, turned out to be a good idea because we didn’t miss much for the remainder of the months. Stocks went into sideways consolidation until a low on the 26th, the final of 3 bottom values in our LT wave. Renewed strength in the final days of the month did not materialize.

For September the LT wave suggests a strong first week with highest LT wave value coming on the 3rd. This could be enough to send indexes to another record. The strong period ends around the 6th and is followed by a weaker period until the 25th. Final days of September look better again.

As always, remember that this method is experimental and will not work equally well every month.

Next Monday we will follow up with our weekly chart analysis, as usual.

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LT wave for August

Posted by Danny on August 1, 2016

Another sideways week for US stock markets. That’s strong price action after the recent run-up because usually you would see more give-back. A sideways period after a strong rally is typically followed by higher highs, but other than surprises nothing is ever guaranteed in stock markets. Let’s have a look at the current setup in S&P 500:

^SP500 (Daily)  10_28_2014 - 7_29_2016

Overbought conditions have subsided gradually by sideways price action and the faster Earl (blue line) is already back in bottom region. If it turns up here then we will get another leg up, and that’s my current base scenario. A jump to 2200+ is becoming more likely by the day. Slower Earl2 (orange line) is still climbing, leaving room for further upside action. We also remain in a lunar green period for the rest of the week. So, I still wouldn’t bet against this market, but of course we will inevitably get a pullback at some point.

Time for our monthly LT wave chart. The wave did fairly well in July. Expected strength until the 11th panned out nicely and even carried on for a few more days. Weakness after the 13th came in the form of a sideways range, which is a possibility I mentioned in my post. We actually got one of the narrowest ranges for S&P 500 since at least 1970. The reason why I suspected a sideways move can be seen in the LT wave for August:

ltwaveAug2016

The largely neutral LT wave readings in the 2nd half of July are followed by a major LT wave peak in the first week of August. The highest values come on the 6th and 7th, which are weekend days. In that case a high may come on Friday 5th or on Monday 8th. But it’s never good to rely too much on the exact timing. If there is a record high on the 5th or 8th then I would use it to take some profits. If not, then the rally may just stretch itself into new highs on the final days of August, when LT goes up again. It’s important not to get married to a fixed outcome based on the LT wave. If it works 60% of the time I am more than happy already.
We get a series of LT wave low values between August 11th and 26th, which is when I would expect a pullback.

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LT wave for July

Posted by Danny on July 4, 2016

Most stock markets surged higher after the Brexit panic subsided. If you bought when others were fearful, as we suggested last week, then you must be smiling. The FTSE 100 climbed about 10% from its Monday lows and is already setting new highs for the year. US markets also rebounded strongly.
Is it now too late to buy? Let’s have a look at the S&P 500:

^SP500 (Daily)  9_16_2014 - 7_1_2016

We got the retest of the 2000 level I had been hoping for. And stocks bounced back very strongly off that level. That is bullish price action, but another revisit of the 2000 level would now quickly worsen the scenario. Being not far from new all time highs the market can be allowed some breathing space at this point, but not for too long. A continued failure to climb above the May 2015 highs would soon be punished with another sell-off. So, the market is entering a do-or-die situation.

Technically the setup is favorable with the Earl (orange line) and MoM indicators turning up again, and the slower Earl2 (blue line) at the verge of doing so. So a push to new highs is possible this week already and if it doesn’t happen then another chance may come by early August.
If no new highs are seen before the middle of August then the odds will quickly shift towards another drop to ~1900. But I prefer to take things one step at a time, so let’s first see what happens with the current market rally.

We also have the LT wave chart for July:

ltwaveJuly2016

The wave did well in June. The high of the month came exactly on the 8th and a first low came on the 16th, just one day off with projected low on the 17th. The second low (expected on 23rd) came with a few days of delay, and was followed by new strength in the final days, as expected.
For July the wave suggests ongoing strength until the 11th, followed by weakness from the 13th until around 20th. The final week looks mildly positive again. Highest LT wave values come on the 6th and the 11th, with another possible peak on 26th. LT wave lows are projected for 16th and 20th. None of those highs and lows stand out as extreme values so it could turn out to be a sideways range period, especially from the 13th onwards.

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