US markets have reached new record highs. Hurray! Or, last hurray?? S&P 500 and Nasdaq have done exactly what I expected to happen per my recent posts: Ready for 2500 and Show Time. The S&P 500 is stalling just below 2500, and Nasdaq has climbed to 6400 but seems to encounter air pockets up there. A few weeks ago I said that kind of price action would be a sign of weakness. Let’s see how that looks like in the current chart:
The same drawing I posted on July 11, with the S&P now moving nicely into the projected blue target circle. That’s not the product of some magical crystal ball I have, but merely linear interpolation of the recent trends. That obvious trend will stop eventually and the big question is when and where. My Earl indicator has turned down already, and the slower Earl2 has all but negated the recent rally. That’s what I warned for and this is a reason to be very cautious at this point. It looks weak but as long as no trend lines are broken things are holding up. How much longer? I don’t know. All we can do is watch and be ready.
The LT wave did a fair job in July and here is the wave for August:
Expected weakness until around the 20th proved much more short-lived. The S&P 500 bottomed on the first expected low near the 8th and then climbed steadily into the expected highs around the 26th. Intra-day peak came on the 27th, no perfection in this world…
For August the wave suggests weakness until around the 15th, followed by an unusually strong period until the 25th. The lowest LT wave value comes on the 10th and then goes to a very high LT wave reading on the 23rd. If the S&P gets through the weak period without technical damage then a major high may be seen on 23rd (+/- 1 day). If we get a significant drop first then 23rd is more likely to become a rebound high in an ongoing decline. That are the two major scenarios I would consider at this point. As always, please remember the LT wave is experimental and will not always work perfectly.
I also want to revisit my June post: Get ready for the August eclipse. As expected, news media and astrologers are getting very excited about this event, e.g. this Newsweek article: http://www.newsweek.com/total-solar-eclipse-trump-astrology-prediction-643776. Basically, if anything serious happens to the US or its president in the next two years then astrologers will conveniently blame it on this eclipse and take it as proof that their methods work. Question: and when was the last time nothing significant happened over a two year period?
Don’t get blinded by this eclipse, I would rather keep an eye on the 1987 chart comparison I posted. The recent 6 weeks price action has continued to be exceptionally similar. Here is a more detailed comparison chart updated for July:
History doesn’t repeat, but sometimes it rhymes. As far as direct year to year comparisons go this is as good a rhyme as you will ever see. The rates of change differ, but the important highs and lows keep matching well. At some point the rhyming will stop, but we don’t know when. An S&P surge above 2500 in August, with breakout above the blue line, would make the historic comparison even more compelling. A similar October crash, taking into account the differing rates of change, would then target 2150 (= the 2015 highs).
I never have more than 60% confidence in any scenario, including this one. But I am keeping an eye on it.
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LT wave for April
Posted by Danny on April 2, 2018
Markets are going through another significant downswing. Volatility has been high compared to what traders got used to in 2017. This was of course inevitable, and it is something I was watching as an indication that we are getting into the late stages of a multi-year bull market. See: Updated long term scenarios and charts.
So, what’s next? Here is the current Nasdaq chart:
The long term blue trend line in Nasdaq is clearly broken. But the Nasdaq is still in a higher highs and higher lows sequence, so it’s too early to declare the end of the bull market in this index.
The Earl (blue line) is turning up from a major low. The slower Earl2 (orange line) is still dropping fast, but well into bottom territory. The MoM indicator has fallen into the blue pessimistic zone (<-5), where major buying opportunities are usually found. Once the MoM turns back up we will have a nice setup to do some cautious buying here.
If major indexes drop below their February lows, then more bearish scenarios would gain traction. That wouldn't rule out new record highs later on, but it would probably push them further back in time.
Our lunar cycle has been on fire so far this year, so that's something to keep an eye on as well. A new green period starts later this week, so it will be interesting to see if it keeps rolling on: lunar cycle tracking page.
Our LT wave did a decent job for March. The peak early in the month came with several days delay, but the subsequent weak period ended on target at March 26.
Here is the LT wave for April:
There are no outstanding peaks or lows in the projection for April, which suggests volatility will drop. We see a period of mild weakness until the 12th, followed by a more positive bias for the remainder of April. The lowest LT wave value comes on the 4th, and there is no daily peak value worth talking about.
If the wave holds up then I would look for a low in the first trading days of this week, but probably not a major new low. And then a very gradual recovery that could lift the S&P 500 back to near the 2700 area.
Let’s see.
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