Investing with the Moon

Posts Tagged ‘LT wave’

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:


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:


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:


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:


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:


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:


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:


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:


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:


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:


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:


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:


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:


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:


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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The Brexit opportunity

Posted by Danny on June 20, 2016

The highly anticipated Brexit referendum is coming up, so the topic will dominate the news and the markets this week. I want to give some comments on aspects that got lesser attention and then move on to my weekly stock market chart.

For weeks (if not months) every drop in British stock prices or GB Pound has been blamed on “Brexit fears” in the popular media. Whenever stocks or Pound went up I never saw it being attributed to “Brexit hopes”. That’s how the media is imprinting our minds with the idea that a Brexit is something to be feared, not hoped for. And if something gets repeated often and long enough then it starts being believed. We thank Joseph Goebbels for that concept. Google Trends shows us how the use of the term “Brexit fears” has been cranked up tenfold in the recent month, while “Brexit hopes” is never used.


The “Brexit fears” meme has been spread successfully, but is that enough to decide the vote? We will find out soon.

Many people probably wonder: isn’t it much better for everybody if Europe is united rather than divided? Well, that depends on what type of union is being chosen. You can create a Soviet style European Union, which concentrates ever more power in the capital and sets up mechanisms for punishing the countries or regions that refuse to comply with the “orders from above”. Or you can create a decentralized Swiss style European Union, which leaves most power in its member states/cantons and lets those states free to leave the union if they want. That’s the choice between a EU of coercion or a EU of cooperation and partnership. My impression is that most people in the UK (and in Europe) are not against working together in the region and coordinating things wherever possible. But more and more people don’t want to be held prisoners in a supranational organization that doesn’t always have their interests in mind.
A “union” that works for the good of all its member states doesn’t need to make it prohibitively expensive to leave that union, because if everybody benefits nobody will want to leave. That’s why the Swiss model succeeds in serving all its cantons. Even the smallest Swiss canton retains the right (guaranteed by constitution) to hold a referendum on leaving the Swiss union. The procedure to leave is clearly laid out in its laws.

Compare that with the EU, which has been moving in the other direction since the 1990s. The Euro has made it very difficult and expensive to leave the union. And even the countries that didn’t take the Euro, such as UK, see themselves threatened if they dare to consider leaving. The UK will be sent to the back of the queue, according to Obama. And it will be economically suffocated into an insignificant Guernsey, according to France’s economy minister. Just to name a few… As if independence has become something bad that needs to be punished?
And it amazes me that nobody is pointing out this glaring contradiction: the same politicians who have been insisting for years that Ukraine’s independence should be respected and that it should be able to chose its own trading partners rather than have a more powerful neighbor decide what it should do, are the very same people who are now telling the UK that it will be isolated and dwarfed as an economy if it goes back to full independence and makes its own trade deals. Ukraine is strong enough to make it, but the UK will be sent back to the Middle Ages if it dares to stand on its own legs. Weird…

A union of coercion that stands ready to punish any country that wants to leave is always going to be a dangerous organization. Even mobile phone companies have figured out that the best way to prove their commitment to good service is by making it easy and quick for customers to cancel and leave. The EU avoids that kind of commitment and that’s why it has become a bureaucratic quagmire. It doesn’t need to offer good service because its “customers” are locked in.
A union of coercion, where the members are made to serve the organization instead of the other way round, is always going to lead to increasing tensions within that union and will revive nationalism rather than soften it. The problem is that when power becomes too concentrated into a few hands then “narrow interests” become very eager to grab those few power positions for their own convenient use and sooner or later they succeed. They typically use “good intentions” as lipstick on the pig, but such a centralized union can never be safe. Only a decentralized cooperative network can guard us for that danger. A Brexit would be a great opportunity to force the EU to rethink itself and go for a Swiss style union, which has clearly been the more prosperous and peaceful model. Then Brexit would become a blessing in disguise.
Let’s not forget that the UK has been moving in that direction for decades already, first by letting its empire dissolve, and later by giving more and more autonomy back to regions like Scotland and Wales. The EU is headed the opposite way and that’s why there is a growing disconnect and a growing anti-EU sentiment all over the region. It is not too late to change direction and Brexit can become the catalyst for that change. If so it will also be bullish for stocks in the longer term.
Brexit will not cause UK to become a small Guernsey, but it may cause Europe to become a bigger Switzerland. And who wouldn’t want that?
That’s the Brexit opportunity. Will it be taken?


Stocks have remained under pressure and the Nasdaq has been holding on to the 4800 support level we indicated last week. Here is the current S&P 500 chart:

^SP500 (Daily)  9_26_2014 - 6_17_2016

I would look for the 2000-2050 zone to keep offering support here. We remain in a lunar red period until Thursday and the LT wave for June reaches a low on the 23rd, so I wouldn’t be in a hurry to buy. The Earl indicator (blue line) is in the bottom zone and ready to turn up. Thursday may well become the perfect day to buy, and I wouldn’t wait for the Brexit referendum result.

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LT wave for June

Posted by Danny on May 30, 2016

Stocks had a strong week and the S&P 500 is coming close to its April highs. We warned for another strong upswing in our post last week, and that’s what we got. The odds for a further rally have improved again, but the April highs are likely to offer resistance on the way up. Here is the current Nasdaq chart:

^COMP (Daily)  8_26_2014 - 5_27_2016

The Earl2 indicator (orange line) has finally turned back up and that’s a setup that opens the door for further gains. But we have several overhead resistance lines converging around the 5000 level, so I wouldn’t look for stocks to get over that hurdle without some volatility. I expect stocks to keep trading with a positive bias this week, but a sustainable push above 5000-5050 is likely to take more time.

The LT wave for May did a mixed job. Expected weakness in the first week panned out nicely, but subsequent strength until the 18th only produced some sideways action with a few strong up days. Last week’s climb to new highs for the month went against the expected pattern. Here is the LT wave for June:


The wave projects a strong period until 13th, followed by a weaker period until the 25th. The final days of the month are stronger again. Highest LT wave value comes on the 8th, and lowest values are on the 17th and 23rd.

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