Yogi, Boo Boo, or Gummy - pick a Bear!
May 15, 2016
Since January we've been chatting about a new Bear ... one which rapidly mauled 20% out of some markets, but has been more like a soft-chew gummy bear on the major Wall Street indices.
Copyright: Randall Ashbourne - 2011-2016
In the last edition, in April, I indicated the potential negative impact of Mars going retrograde, something the planet does every couple of years, but which can be particularly dangerous when it occurs while markets are in a topping phase.
Mercury is also now a little over midway through one of its regular retrograde periods, often a time when prices change course every few days and it's difficult to get an accurate reading on what to expect next.
The Reserve Bank of Australia is the latest of the central banks to cut interest rates and there is talk it, too, is headed to the negative interest rate area.
And there's the problem ... because it makes stocks the only "growth" option.
So, we'll spend some time in this edition of the Eye taking a look at just what sort of Bear we're dealing with.
And whether it's a real Bear, or a Bull that dressed up as one to play mind games with us!
Safe trading - RA
(Disclaimer: This article is not advice or a recommendation to trade stocks; it is merely educational material.)
The desperate search for yield is having different impacts on different markets. We'll begin the analysis with a look at Wall Street's main trading index, the SP500.
In the last edition, I explained the impact of Mars, the planet which symbolises drive and energy, on the price of stock indices and how the 500 (as well as other indices) rises over time very much in-step with the angle of Mars' travels through our solar system. It's in the Archives if you need a refresher.
In our first chart, I'll reiterate the "drive" on a weekly chart. Looking from left-to-right, we can see that almost all of the price action since the last Bear bottom in 2009 has been contained within a rising channel between two Mars price lines placed 360 degrees apart.
There have been three downside breaks of that channel, with Pollyanna recovering each time to claw her way back inside the rising channel. The next chart shows the most recent action and narrows the Mars lines down to 90 degrees, as well as including the falling channels.
The 360 degree channel of the first chart is marked by the thicker red lines in this one and we can see how the 500 has been slowly dropping since Mars went Rx a few weeks ago. It is still trying to cling to the support that channel provides.
And while Mars tends to dictate the angle of rises and falls, it tends to be the price lines of the slower-moving outer planets which set the more horizontal levels of support and resistance.
In the February 7 edition, Waiting for the dead cat to bounce, I said: "It is possible a rebound could take price all the way back to the 2080s."
The index went a little above the 2087 level for a few days before being repelled by a falling, primary Mercury line (pink). In theory, the rally on Wall Street should be over, done and finished.
We'll turn now to the top two European indices ... the DAX and the FTSE. Both certainly appear to be well within the grip of a real Bear. The DAX has fallen out of a long-range Pluto/Neptune price cluster and hasn't been able to score a close inside it for the past 5 months.
Its Big Bird oscillator, the 50 CCI, is in Bear mode without even a hint of positive divergence suggesting a sustained rebound.
Instead of using planetary prices for the FTSE we'll use a couple of really simple technical lines ... the rally angle and a black horizonal line of support and resistance.
The FTSE has not closed below that black line, despite the spikes down, for many months. And that's one reason I remain more than a tad cautious about the exact nature of this Bear. The FTSE is finding support on TOP of the line, rather than consolidating below it.
And what makes me cautious is that price is not following the patttern Big Bird established during the 2007-2009 crash. Yes, this Bear also took a huge bite out of the index on its first decline ... but lately has morphed into some sort of gummy bear. Normally, when the oscillator drops but price simply goes sideways, it is a preliminary warning that the oscillator is just readying itself for another rally surge.
And I've been getting the same sense of real caution on the ASX 200. This index slumped more than 20% in 11 months from April last year and Big Bird started a death dive much the same as it did after the previous Bull peak.
But something odd is happening. Big Bird's dive has been constantly stalling, something it did not do during the crash into 2009.
We can also see it in the performance of all three Birds on the weekly chart below. The rebound hasn't been able to climb and stay above the 50% retrace level ... but the performance of the red Medium Bird and the blue Big Bird strongly suggest the index is not finished trying to do exactly that.
The only negative divergence here is in the green Fast Bird, which indicates only short-term resistance.
So, overall, my impression is that we are probably still wrapped in the claws of a very nasty and quite long-range Bear.
But, there are a few caution flags warning us not to get so certain of that as an imminent outcome ... and to be gently aware that Yogi and Boo Boo are taking time out for a picnic!