LunaticTrader

Investing with the Moon

Posts Tagged ‘Support and resistance’

Prospects for Gold

Posted by Danny on April 16, 2013

This is an update to the long term gold chart we posted in February.

The large drop of the recent weeks is giving us more clarity going forward.
Here is my first chart (click for larger image):

gold monthly

This is a monthly chart. Even with the recent drop, this market is still in a clear long term uptrend. So, it is way too early to declare that this bull market is over. But this is of course at least a very big correction.
I have drawn in an ellipse which has nicely contained the moves since gold broke above its 2008 highs.
This pattern should be resolved by September.
Notice how neither the Earl nor the Earl2 are showing any bottom yet.

Looking more into detail and projecting possible ways forward, we have this chart (click for larger image):

gold monthly

When you have this kind of fast move, then there are three typical scenarios:
1) the biggest rate of change comes at the very end of the move (that’s what we had in the 2008 correction)
2) the biggest rate of change comes in the very middle of the move
3) in a more rare variant, you get the highest rate of change at the 1/3 or 2/3 point of the entire move.

We can see that the support level near $1440 did not hold the market and we have now fallen to just above $1300, where stronger support is likely.
Going forward I look for gold to hover between $1300 and $1440 (support has become resistance) for a couple of months. And then it will probably move depending on one of the above scenarios.
In scenario 1 we would look for a breakout above $1440, which would resolve the ellipse pattern and be a signal to buy.
In scenario 2 we would get another drop towards $1080, probably in August or September, and then the start of a new move upwards. So, if we get this drop to $1080, then I would also buy and use a stop-loss just below $1000.
Notice that on a drop from $1800 (last year’s high) to $1080, we would expect the greatest rate of change in the middle, which happens to be exactly $1440.
Even on the daily chart, gold has dropped from $1560 to $1330 within two days, which also puts the biggest rate of change point at $1445. This points to an ultimate low just below $1100.
In the more rare scenario 3 we would look for a bottom around $1260 or all the way down to $720 (which puts $1440 at the 2/3 and 1/3 points respectively).

Good luck,
Danny

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Hanging on

Posted by Danny on April 8, 2013

The Nasdaq briefly touched a new high for the year last week, but then sold off and fell through important support levels. The S&P 500 and the Dow Jones Industrials are showing a bit stronger, and are still within their up trends that started last November. What to make of this?

Here is the current chart for the S&P (click for larger image):

S&P 500

Notice how the S&P is still within the uptrend and has held its support around 1540.
This means we cannot rule out another push towards its all-time high @1576, especially since we remain in a lunar Green period this week. But it will have to happen fairly quick, otherwise the S&P is likely to follow the Nasdaq down by also breaking below its support levels in the next lunar Red period. My Earl indicators also remain negative.

So, for this week I think the market will try to hang on at least for a few more days, keeping hopes alive for putting in a new all-time high, but will then weaken towards the end of the week.
A few weeks ago we put a stop-loss for the S&P at 1540.
Now my stop is moved to 1544, so on a break below that level I would get out and wait for upcoming signs of a bottom.
The first downside target would become 1490 and then 1425.

Later this week I will have some new material on commodity cycles.
So, stay tuned.

Danny

 

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