Investing with the Moon

Posts Tagged ‘LT wave’

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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LT wave for May

Posted by Danny on May 2, 2016

Stock markets have finally entered something more than a 2 day pullback. Last week’s advice to step aside works out fine so far. Now the next challenge is to watch for signs of a bottom. Let’s have a look at the Nasdaq chart:

^COMP (Daily)  8_8_2014 - 4_29_2016

All my indicators keep pointing down, with bearish divergences still in place. So, I wouldn’t rush back in just yet. This pullback or correction may continue for several weeks or months, but there will also be strong up days. A correction target in the 4600-4700 area would be fairly normal given the 800 point rally from the February lows. A deeper drop would indicate that a retest of the February lows is likely. It is too early to tell which scenario will unfold.

As for a possible path forward the LT wave for May could offer some clues. Here it is:


The LT wave for April did a fairly good job. Expected choppy neutral trading in the first weeks panned out perfectly. The high of the month came on the 20th, exactly on the day with the highest LT wave value,  and was followed by the predicted weakness in the final week.

For May the LT wave suggests continued weakness in the first week, followed by a strong period from the 7th until around the 18th. The final 10 days of the month show significant weakness again. The lowest LT wave value comes on the 3rd and the highest value is on the 17th.

As always, please remember that this LT wave is experimental, so don’t expect it to work perfectly every month.

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LT wave for March

Posted by Danny on March 1, 2016

The Nasdaq ended the recent lunar red period with a massive 323 point gain, one of the strongest red periods ever. In the recent months the market has been going counter to what we normally see in green and red periods, but somehow our LT wave keeps doing very well. This is very interesting as there must be some reason for this. I may be able to use the current observations to figure out in advance when the red and green periods are more likely to have a “cycle inversion”. I will keep you posted on the progress, if any.

Let’s have our weekly look at the S&P 500 chart:

^SP500 (Daily)  5_21_2014 - 2_29_2016

The S&P has reached its highest level since early January. Technically the slower Earl2 (orange line) is still going up with further room to rise. But the faster Earl (blue line) has peaked and is starting to go down. This suggests the market needs a bit of pullback or pause at this point, but there are good chances it will resume higher after the Earl bottoms out again. The MoM indicator is still pointing up as well, but appears to flatten out. A new lunar green period is now underway, but the setup suggests that this may become another weak green period. In best case scenario the S&P may march on to just below 2000, but more likely is a sideways period.

We also have the new LT wave chart for March:


The wave did very well in February, correctly indicating the weakness in the first half of the month, followed by a much more positive second half.
For March the wave suggests weakness in the first week, followed by strength until the 25th. The final days of the month look weaker again. The lowest LT wave values come on the 6th and the 28th. The highest LT wave value will be on the 24th.
For new readers, please remember that this LT wave is experimental and I cannot guarantee anything.

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LT wave for February

Posted by Danny on February 1, 2016

Stocks have continued their rebound and suddenly it looks as if the world is not falling apart after all. Last week we have warned that the bottom may be in and so far that call doesn’t look bad. We are in a new lunar green period again, and in the previous period the lunar cycle finally got back on its feet after a string of failed periods. If this is the start of some cyclical normalcy then we can look forward to further gains. Here is the current S&P 500 chart:

^SP500 (Daily)  5_16_2014 - 1_29_2016

Major support levels were seriously tested, and they bent but didn’t break. The slower Earl2 (orange line) has finally turned up from a major low. All three my indicators are now pointing in the same direction: up. We may get a few more air pockets, but it looks pretty good. I think this market can continue towards 1980, where I would expect first major overhead resistance. Then we will see what happens next.
The obvious line in sand is now given by the January 20 lows. If that gets broken to the downside the chart would look really ugly and then another wave of panic selling would become hard to avoid. But that’s not the base scenario for now. I think there is a good chance that January 20th will stand as the low for the year.

The LT wave for January did an almost perfect job. Weakness until the 21st, followed by strength in the final week. The market bottomed on the 20th, just one day after the lowest LT wave value for the month. Highest value of the month was the 29th, which gave us the strongest up day. It doesn’t get much better than that. Here is the LT wave pattern for February:


The wave suggests some weakness early in the month, with the lowest LT wave value coming on the 5th. After that it improves steadily with the second half of the month being mostly positive. Highest LT wave values are on the 8th, 18th and 26th. Let’s see how it goes. Bear in mind that this LT wave is experimental, so don’t be too confident that it will always work as well as it did last month. There is no perfection in this world, only perfect imperfection.

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LT wave for January

Posted by Danny on December 28, 2015

The last trading days of the year are showing a light upward bias, as they typically do. It is usually hard to read something in days with very light trading, so we will probably have to wait for next week to see where stocks are going next. Let’s have a look at the Nasdaq chart (click image to enlarge it):


The Nasdaq is back above 5000. The Earl and MoM indicators are going up, but the slower Earl2 is still going down. Major support just below 5000 (dashed grey line) has been tested three times in the recent months and has held nicely so far. As long as that remains the case the setup favors further gains once the Earl2 turns up, with good potential for new all time highs in the first months of 2016. A drop below the December lows would invalidate the bullish scenario, and if that happens the outlook would worsen quickly.

The LT wave for December was far from perfect but it correctly indicated the weakness in the middle of the month. For January the LT wave shows a similar pattern (click image to enlarge it):

LT wave

The first days of the month look strong, but then the LT wave suggests downside pressure until the 21st, followed by a positive tendency in the final week. The highest reading of the month comes on the 2nd and the 29th, with the lowest LT wave reading on the 19th.

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