In last week’s Market Wrap I said “Our lunar studies suggest that historically, the coming lunar phase is amongst the most negative so next week could very well show the weakness that we have been expecting.” The subsequent price action in both markets proved this to be correct.
From a lunar phase perspective the coming week is statistically neutral to slightly positive. Adding to the lunar phase information the Technical Market Report for the 16th April, 2011 on the Safehaven website based on a number of seasonal factors has the following conclusion: “ The feeble rally at the end of last week was not convincing, but, the 3rd week in April is usually strong as is the week prior to Good Friday. I expect the major averages to be higher on Thursday April 21 than they were on Friday April 15.” You can find the full report at the following link:
So we can gather from these two different seasonal methodologies that next week should not be too excessive in terms of declines and in fact may be positive.
The S&P500 actually peaked last Friday at 1339.46. The XJO on the other hand didn’t peak until Monday. It managed to zoom up to 4976.4. We had previously commented on the relative strength of the XJO over the S&P500 in recent Market Wraps.
The following chart gives us the latest status of the XJO Conti cycles. We can see the variable nature of the Conti cycles as time progresses. For this reason we have to use Conti cycles as guidelines only. As has been stated on many occasions, any resultant Conti cycle is influenced by the makeup of the numerous sub-cycles making up the particular Conti cycle under observation. As these sub-cycles have varying periods and amplitudes, the resultant Conti cycle will tend to vary as well.
As an example we can see from the above chart that the previous 70 trading cycle turned into a 77 day trading cycle. More recently the previous 33 trading day cycle made a top after 37 days. Whether we now have changed from a 33 day cycle to a 37 trading day Conti cycle remains to be seen.
Using the 25 day Conti cycle, I have used the resultant projected Conti cycle date of the 21st April as a possible low for the current retracement in the XJO. This approximate date fits well with other cycle analysis methodologies that I use.
The S&P500 in the last week peaked at 1339.46, dropped down to 1302.42 (37.04 points or 2.77%) on Thursday and then bounced to a peak of 1322.88 (20.46 points or 55.2% retrace of drop) before closing at 1319.68. The following 20 minute chart shows what the price action looked like for the S&P500 during the last week.
We can see that the index had been travelling down in a red descending channel and recently broke out of that channel in an ascending blue channel. We should note however that late on Friday’s trading session the index broke down through the lower boundary of that blue ascending channel and back tested that lower boundary. At the close of business it remained under that boundary.
The obvious question that arises from the above chart and positive seasonality comments on page 1 is “have we seen the bottom of the retracement and are we now going to start the last rally leg that I have mentioned in past Market Wraps?”
In an attempt to determine what may possibly happen we need to look at the index in a couple of different time frames. Let’s start off with the 99 minute time frame.
We can see in the chart below that the current price action (1319.68) is above the MBB (located at 1317.42). We can also see that the LOI is currently trending upwards. Assuming that the MBB could provide support for the index this would tend to suggest that perhaps the positive seasonal comments on page 1 may prove to be correct.
If we now move to the daily chart for the S&P500 we can see that once again the current price action is above the MBB (currently located at 1318.96). This time however we can see that the LOI is trending downwards.
This suggests that whilst we may get a short term positive move, the downward pressure on the index is still in play in the longer time frame. We should of course remember that developments in the longer term time frames will always occur in the shorter term time frames first. I should also note that whilst not shown on any charts in this Market Wrap, the 20 day SMA for the S&P500 is currently located at 1318.92 and the 50 day SMA is currently located at 1315.36. Hence these moving averages are providing a support for the index at the current levels.
Coming to the weekly planetary chart for the S&P500 we can once again see the immense influence that the Saturn and Neptune planetary lines have on this index.
The overhead Saturn line at 1336 has provided a significant overhead resistance and the index is currently near the Neptune line located close to the 1320 level. The index needs to use this line as support or it will find itself heading down towards the next Neptune line at 1289.
Since the peak of 4976.4 achieved on Monday, the XJO has dropped 2.5% and after appearing more bullish than the US market last week, it now looks decidedly more bearish. The positive lead from Wall Street has our ASX200 futures contract anticipating a move up of 16 points on Monday’s open. This positive sentiment is not shared by the ADRs on the NYSE. During the last trading session in NY BHP was down 0.77%, RIO was down 1.11% and WBC was an insipid 0.13% up. So, as has been the case on many occasions recently we are getting mixed signals from these different sources.
So let’s see what we can determine from looking at 3 different time frame snap shots of the XJO.
First of all is the 20 minute time frame which covers the period from the beginning of April. We can see that the index topped out late Monday at 4976.4 and then proceeded to retrace the previous rally. Note that the retrace is occurring in a wedge shaped pattern which has the ability to rebound fairly quickly when the upper boundary is breached. The LOI is indicating that the downward momentum is decreasing so a bounce in the short term is definitely on the cards.
Moving now to the 99 minute intraday chart covering the period from the 9th February 2011. Here we get the medium term view of the previous decline, the subsequent rally and now the current decline. Once again we see that whilst the BB’s are opening up and the LBB is dropping away, the LOI is once again showing a reduction in downward momentum and the possibility of a bounce in the making.
We can see from the following daily chart that the XJO continues to move in an upward trending channel and remains in the upper region of this channel as well as above the MBB at 4822. The only negative is the breakdown of the LOI signal. Not shown on the chart is the 50 day SMA which is located at 4811.66 which could also act as support.
Now we look at the weekly planetary lines for the XJO. That last weekly candle shown in blue in the planetary chart is normally shown as a red negative candle which means that the price action is currently at the bottom of the candle body (4852.14). Note that the next support level is 4798.
Following are the conclusions that I would draw from observing the above three different time frame charts:
- The XJO is in the midst of its first higher level retracement since the low of the 17th March.
- What is not clear yet is whether that retracement is coming to an end or whether the decline only represents the first wave of a 3 or 5 wave corrective pattern. This will only be able to be determined from further price action.
Both the S&P500 and XJO daily charts suggest that there is still more downside potential. The LOI in both indices have broken to the downside and currently show no loss of momentum.
The shorter term timeframe charts however appear to be signaling that there may well be a short term bounce in both markets. How long those market bounces last and whether they can turn the bearish LOI daily signals around remains to be seen. All we can say at this time is that there is likely to be some upward movement in the indices in the early part of the week.