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Stocks in New York fell for the second straight week amidst growing signs of protracted economic weakness as equities slipped 2%. After Monday’s strong gain, the market closed in the red four days in a row with the Dow closing at 9487 and the S&P at 1025. Markets have now put up losses in seven out of the last eight sessions. This outcome was largely in keeping with expectations as the slow moving Mercury-Mars aspect did its part to deliver the bearish goods. As predicted, Monday was higher before the Mars negativity took hold. It was all downhill after that, however, as the Mercury direct station allowed for its extended exposure to the difficult Mars influence that lasted until Friday. The worst day of the week was Thursday as stocks lost 2%. This was a little later than forecast, but still a fairly acceptable outcome given our bearish stance. I had also suggested that Friday might be fairly bullish and indeed there was a midday rally attempt that took the market into positive territory, but there was a fair amount of resistance at SPX 1030 (i.e. the bottom of the rising wedge pattern) and the rally faltered by the close. Overall, a good week for our general thesis that a significant correction will follow the Saturn-Uranus aspect of September 18. The high closely correlates to that exact aspect date and with the exception of an intraday spike to 1080 a few days later, the market has been in retreat ever since.

Given the strength of the recent run-up, most analysts have expected a correction of some kind and we indeed are in the middle of one right now. But how far will the market correct? Given the difficult planetary patterns over the next several weeks, I have held to the view that a major pullback is the most likely outcome, perhaps around 15-20%. The technical evidence also gives some support that we are facing something larger than a standard 10% correction. The bearish rising wedge pattern was breached on the downside late last week. The support level of this pattern was 1040, with a secondary support level of around 1030. Both of these levels were broken on Thursday and Friday. Friday’s inability to generate a rally above 1030 was a classic sign that support had become resistance in a reversing market. It’s still possible for bulls to argue that the violation of 1030-1040 was a false break out, but other technical indicators are similarly bearish. RSI at 44 has fallen below 50 and is turning down. Note how in previous corrections in August and September the RSI got to 50 but then reversed back up. This is a possible signal that this correction will be deeper than previous ones. MACD is turning sharply negative in all areas, while volume was mostly in line with recent weeks, although we can detect a slightly rising trend in the past two down weeks as compared to the two weeks ahead of the top. Volume can sometimes rise right in the final week of a bearish rising wedge before prices break support. More generally, rising volume in down weeks is a bearish signal. In terms of possible downside targets, the 200 DMA sits at SPX 900 so that is one possible area of attraction for the market. This is in fairly close proximity to the July lows of 880/8100.

This week will likely tell the tale about the extent of the correction through October and November. The planets are potentially explosive here, so it is difficult to make meaningful price targets. For the moment, I will stick with my expectation of a downward move of 10% on the week, if only for consistency’s sake. I would not be surprised to see something larger than that. And if it’s smaller than 10%, that may only mean that the correction may be more gradual and drawn out, with a second leg down in late October and early November. There are several reasons to expect a major move this week. First, we will have no less than four planets changing their sidereal signs in the same week. Last week’s bearish culprits, Mercury and Mars, are moving forward together now and will both change signs Sunday October 4 ahead of the trading week. While Mercury moves back into Virgo where it gains some strength, Mars enters Cancer, its sign of debilitation where it is weak and therefore more prone to violent and uncontrolled outbursts of energy. And to make matters worse, Mars will conjoin unpredictable Ketu on Friday. While we should be careful about expecting too much gloom and doom here, I note that the 9/11 attacks occurred during a Mars-Ketu conjunction. This conjunction happens every two years or so, so it’s not always catastrophic, but it is nonetheless a negative factor. In addition, both Uranus and Neptune are also changing signs this week, as Uranus retrogrades into Aquarius on Monday and Neptune retrogrades into Capricorn on Thursday. These slow moving distant planets only change their zodiac signs once every several years, so the prospect of having them enter new signs at the same time (and at the same time as Mercury and Mars!) is very unusual indeed and could mark a major change in world attitudes, sentiment and outlook. While there are no certainties in astrology, I would say this collective change in planetary resonance definitely increases the chances for either 1) a newsworthy market decline or 2) a significant geopolitical event that may have major market implications. Of course, Saturn comes under the disruptive influence of Rahu more completely this week so that is another reason for extreme caution here. Saturn signifies caution and pessimism, and its contact with Rahu may mean an overabundance or distortion of pessimism that could induce more selling as investors turn fearful. Monday could possibly be higher as Venus is departing its aspect with Jupiter, but it seems mostly negative after that. Friday may paradoxically end positively, as Venus forms aspects with both Uranus and Neptune while the Sun approaches a supportive aspect from Jupiter. The exact Mars-Ketu aspect at the same time promises a volatile end to the week so would not be surprised by any outcome there, but just to say there is some reason to think there could be a snap back rally at that time.

Next week (Oct 12-16) also looks volatile as Venus conjoins Saturn Tuesday while still under the influence of malefic Rahu so we could well see more downside to the correction. I’m not certain if it will equal the size of this week’s pullback but it may well be close. The most bullish day of the week seems to be Friday as the Sun aspects both Uranus and Neptune. The following week (Oct 19-23) looks quite bullish on Tuesday’s Mercury-Jupiter aspect so we can expect a significant rally attempt at that time. Friday also looks quite positive as Mercury approaches Uranus and Neptune. After that rally attempt which could push prices up 5-10%, the subsequent two weeks look more bearish on the approaching Saturn-Pluto square, as if the markets will try to find a bottom. As I see it, there are two scenarios. First, it’s very possible that we will see a lower low made in early November, after which the market can stage a rally going into December. The second scenario is that the bottom will be formed in mid-October and any decline we see going into early November will form a double bottom or even a somewhat higher low which will then spark a rally into December. Either scenario is possible, although I would lean slightly towards the first one. This is what happened in the Shanghai market during its correction in August. It declined 18% in the first two weeks of the correction, rallied 6% in the next week, then declined further for another week for a total correction of 25%. As an astute newsletter reader reminds me, Shanghai may not exactly foreshadow what will happen in the US, but it may well seen as something of a leading indicator since it bottomed ahead of the US in November 2008 and was quicker to rebound.

5-day outlook — bearish
30-day outlook — bearish
90-day outlook — bearish-neutral

Closing a bit above 77, the dollar managed a second week of gains last week, modest though they were. This positive dollar outcome was in keeping with expectations, although I was nonetheless frustrated that it failed to break above its critical resistance level of 78. As predicted, the early week was bullish as the Sun-Midheaven aspect generated some decent buying. Wednesday’s decline was disappointing as the Venus-Moon aspect appeared to manifest early. Thursday’s gain made up for the previous day’s loss and coincided with a minor Venus-Venus aspect. Friday’s pullback was less surprising given the Venus-Mercury square we noted last week. Even with the inability of the dollar to breakout above the falling wedge resistance level, its technical picture continues to improve. MACD has turned higher since the bullish crossover and promises further gains. RSI now stands at 47 and continues to edge closer to the bullish 50 level. 78 represents its 50 DMA and the resistance level in its current price pattern so once it breaks above that level, it may move quickly to the upside.

This week looks very positive for the dollar, particularly toward the end of the week. This may finally be the time when the dollar bulls get their wish and it rises above 78. The late week Sun-Jupiter aspect will set up very close to the USDX ascendant and that ought to propel the dollar sharply higher. I am expecting more gains the following week as Mercury comes under the positive energy of the natal Jupiter. More strength is likely the following week as Venus conjoins the Midheaven and the Mercury-Jupiter aspect will set up on the ascendant. This takes place on the 19-20th and could mark a interim high in the dollar. After some consolidation, look for the bullishness to return by Oct 26 when Venus receives Jupiter’s aspect while activating the ascendant. The dollar could well stay on a winning streak into November. It’s difficult to specify targets here but much will depend on what kind of boost it gets this week. If it explodes upward to 80, then we could well get to 83 by November. If, however, we only see 78 by Friday, then 80-81 might be a more realistic target by November.

The Euro fell back under 1.47 last week as investors showed signs of losing confidence in the recovery. While I fully expected some pullback here, the modest nature of the decline was disappointing. The Saturn aspect wasn’t enough to really shake things up, perhaps because as a slow moving planet, it enjoys a certain leeway when it will release its energy. Much the same patterns are in place this week, so there is even more reason to expect a significant decline in the Euro here. Mercury will conjoin the ascendant in close proximity to Saturn while the Mars-Ketu conjunction will occur in a very tight square with natal Saturn. There is very little chance of the Euro bouncing back as long as Saturn is parked on its ascendant. Saturn will eventually move off in November while Jupiter will assume the reigns through its aspect to Mars so some gains are likely as we move later into November. The longer term problem for the Euro is that Saturn will remain fairly close to the ascendant for the next several months. Saturn’s influence is decidedly negative and this pattern suggests a bearish bias until well into 2010. Meanwhile, the Rupee put on an impressive show of strength last week as it closed at 47.6. I had been mistakenly bearish but the consensus view of the Indian economy seems to be quite bullish as it is less dependent on exports than China. Nonetheless, as financial turmoil seems set to increase here, I still think the Rupee is likely to weaken in the coming weeks.

Dollar

5-day outlook — bullish
30-day outlook — bullish
90-day outlook — bullish
 

With geopolitical anxiety over Iran’s nuclear program trumping other factors, crude oil once again traded over $70 before closing at $69.95. This was a missed call for me, as I thought crude would feel the direct impact of the Mercury-Mars aspect. While I had allowed for some strength Monday or Tuesday (and Monday saw a small gain), I did not expect Wednesday’s huge rally. And what is more puzzling, I cannot find a ready astrological explanation for it, post facto or otherwise. This is all to say that many gaps remain in astrology, and even more so in my interpretation of it. Technically, crude’s position is still under pressure as MACD remains negative, although it is poised for a bullish crossover. As if to underline the tentativeness of last week’s up move, RSI sits on the fence at 50, albeit with an upward bias. Crude closed right on its 50 DMA and while that was an achievement of sorts, if it can’t move higher, it may become a significant resistance level.

This week looks bearish again as the Mars-Ketu conjunction falls under the aspect of the natal Mars in the Futures chart. This is a very destructive aspect and it points to a sharp sell-off later in the week. I would not rule out a gain early on, perhaps on Monday or Tuesday, as the Sun forms an aspect to the natal Mercury. But any gains are likely to be short-lived as the Mars influence will more than make up for it. The outlook for crude looks very negative for October as Saturn aspects natal Rahu and the nodes aspect the natal Mars. All four of these planets are malefics, so that increases the likelihood that a steep decline is imminent. I still think $50 is possible before all is said and done with this pullback. After finding a bottom in November, there should be a sizable rally into December as Jupiter will aspect the ascendant of the Futures chart. While there is good reason to expect some bullish moves into 2010, some setbacks are likely in May and June on the Saturn station. The second half of 2010 looks increasingly bearish.

5-day outlook — bearish
30-day outlook — bearish
90-day outlook — bearish-neutral