Week of June 21 – 25 v. 3/25

Stocks rallied for the second week in a row as the European soap opera became less riveting somehow, despite new rumours that Spain may be on the verge of accepting bailout money. The Dow closed higher by more than 2% at 10,450 while the S&P finished at 1117. While I had expected a run to 1110 here, I thought it would be confined to the early week and the Venus-Jupiter-Uranus alignment. Certainly, we did see a big gain on Tuesday just as the aspect became exact and that vaulted the key indexes over their 200 DMA, a key resistance level. Significantly, the gains held by the close and bulls had the market to themselves after that, as the successful breaching of 1107 allowed prices to drift higher for the rest of week. I had expected more selling as we drew nearer to Friday’s Sun-Saturn, but in retrospect that merely signaled the end to the upward move for the week. Wednesday to Friday were mostly flat with a mild bullish bias as the S&P traded between 1106 and 1121 — now fervently claimed as bullish territory. This bullish result was a little disappointing, if only because I was hoping that the effects of the Jupiter-Uranus conjunction would start to fade fairly soon after their exact conjunction. Not so fast. The inability of the late week Sun-Saturn to promote any selling was a clue that we may have a few more days of Jupiterian enthusiasm for stocks, especially since we will have that Sun aspect coming up this week. Overall, however, the durability of the rally does not radically change the road ahead. Jupiter gets a little weaker with each passing day and Saturn that much stronger as they gradually switch places as Uranus’ dance partner over the next month. Uranus begins its retrograde cycle on July 5 so that date may figure prominently in forming the interim bottom. At that time, Uranus will be equidistant from the influence of bullish Jupiter and bearish Saturn. It is worth nothing also that the Uranus station occurs just a day after the birthday of the US and this may foreshadow a year that is very Uranian in nature, i.e. marked by sudden and unforeseen events with an increase in turmoil and change. Then we get the next installment in the Saturn-Uranus opposition on July 26. As we know, this is the aspect that arguably started this whole correction with its last aspect on April 26 when the market had reached its high of 1219 on the S&P. And as if that wasn’t enough, we have Pluto, the planet of transformation and ruthlessness (not necessarily in that order), squaring Saturn during the month of August. It’s a stunning line-up of planets that are likely to shake up the status quo in a profound and at times shocking way.

The technicals definitely turned in favour of the bulls last week as resistance of the 200 DMA was breached and it held through Friday. This was important confirmation of the rally off the double bottom from May 25 and June 8 and the start of a legitimate rising trend. The falling wedge is now a thing of the past as prices have moved higher and now that they exceed the 200 DMA, bulls have their eyes on the next levels of resistance. The 50 DMA at 1139 is the next important level. This moving average brought in a lot of sellers back on May 12 after the Euro bailout was announced as prices made it as high as 1170. It may well do the same thing in the coming days as the bulls take a run at it. Of course, we are dangerously close to forming a head and shoulders pattern that dates back to the January highs of 1150. This is a bearish pattern and it will likely presage the market taking its next move lower. It is important to realize that it needn’t climb all the way back to 1150 (10,700 on the Dow) in order for the pattern to be "real." Given the slightly lower lows in the current correction compared with early February, we may see lower highs on the right shoulder also. You can see this pattern on the daily RSI and MACD in the SPX chart as the May lows are lower than the February lows. Volume continues to be unimpressive here, so that is another clue that the rally may be a mile wide and an inch deep. Slow stochastics (95) are back again over the 80 line, suggesting that the current bounce could conceivably end at any time. The $VIX has tumbled all the way back to its 200 DMA here and it clearly shows a bullish crossover of the 5 and 20 day exponential moving averages. We may see this support level tested this week on any further up days for the stocks. While it may briefly move below this level, the near term prospect of the head and shoulders pattern suggests that it will make another spike higher. The yield on the 10-year treasury fell last week, a potential divergent indicator given the stock rally. This suggests that despite the rise in equities, there is also some money that continues to seek safety in the bond market. Yields are very close to recent support levels of 3.1% and we can see how they have fallen below key moving averages, suggesting a possible further move lower. For the short term, a further correction in stocks will likely occur alongside lower US government bond yields. While that relationship may be called into question eventually as the US deficit gets out of control, it seems more likely that treasuries will continue to act as a safe haven when stocks selloff. To conclude, the technical picture offers a painfully obvious bearish head and shoulders pattern. Everyone and their grandmother is expecting it so one wonders if it will somehow not come to fruition. Very often when something is widely expected, it never happens. Or maybe it won’t quite make it all the way back to 1150. I suspect we will see a round of selling very soon when the right shoulder is considered "completed" around SPX 1125-1150. (Actually, it could be said to be already completed at current levels.) Perhaps the larger question is what happens after that. One rough estimate of the size of any down move is to take the distance from the head (1219) to the neckline (1040) and project that underneath the neckline. This equates with a low of 860 (Dow 8300), which is roughly within the of our target for September. If 1040 is violated in the next down leg, then that level would become important resistance in the event of any rallies in July which would retest the neckline (1040).

This week offers up a rough analogue to last week with possible early week gains coming from the activation of the Jupiter-Uranus conjunction. While Venus played that role last week, the Sun takes its turn here. On Monday, the Sun will form a square aspect with Uranus (6 Pisces) and then on Tuesday it will aspect Jupiter (7 Pisces). This should provide some more upward momentum for stocks, although we should note that Jupiter and Uranus are not as close as they were last week, so the gains may not be as strong nor as reliable. Of the two days, Tuesday looks better than Monday. Wednesday also holds the possibility for gains as the Sun-Jupiter aspect is still quite close although past exact. So the first three trading days of the week look net positive although I would doubt we will see gains on each day. The end of the week looks more decidedly bearish as Mercury is in aspect with Saturn on Thursday (and this may be felt as soon as Wednesday afternoon) while the Sun opposes Pluto on Friday. These look net negative with Thursday looking worse than Friday. Overall, I think there is a good chance we close above support at 1110 and the 200 DMA. But much depends on what kind of lift we get from the early Sun aspects to Uranus and Jupiter. In the event that Monday is negative, we may only be able to climb up to 1130 by Wednesday and then it might be very challenging for the bulls to keep prices above 1110 by Friday. Of course a Friday close below 1110 would be very bearish indeed as it would suggest that the bulls fumbled the ball in this rally and that we are heading lower. I certainly hope that is the case since I am forecasting a more clearly negative week next week, but the presence of some good aspects this week is tempering my downside expectations.

Next week (June 28-July 2) looks like crunch time. We will see a close Mars-Rahu aspect on Monday, just at the same time we will get a Sun-Mercury conjunction. This is likely to spark a major move. It is conceivable that we could move higher for one day, but I would still tend to think we’re headed lower on this combination. The difficulty is that Sun-Mercury conjunctions can be positive although the Mars-Rahu is usually quite negative. By midweek Mercury conjoins Ketu and sets up with the Mars to produce a very foul trinity. Friday also looks pretty nasty as the Sun is in a one degree conjunction with Ketu. This looks like the start of a pullback. The following week (July 5-9) will be shortened for the holiday (Monday closing) but we may well see more downside as both Mercury and Venus are in aspect to Saturn late in the week. We should see a bounce after that until perhaps July 23 and the Sun-Jupiter aspect. In terms of levels, I am uncertain if there is enough bearishness to take down stocks below 1040 in early July. If we see the S&P climb to 1150 this week, then it may somewhat less likely for more than 10% to be taken off stocks in a two week period. An lower right shoulder high around 1130 or 1140 would provide more downside momentum that could be enough to break below 1040 by July 9. If we do break below, we could get to 975 in a hurry. Then the July rally would take us back to 1040 by around the 23rd, and then the next round of selling would begin. Alternatively, a late June selloff may only see us re-test 1040 again and then stocks would try to mount another rally. This would produce more range-bound trading in July between 1040 and 1150, perhaps in a pennant formation which would feature a narrowing price range of higher lows and lower highs. This narrowing price pattern would then be resolved in late July with a breakdown which would take prices lower into the fall. This is a somewhat less bearish scenario, although prices may wind up in a similar place — around 800-920 in September or October. I think the first more bearish scenario is somewhat more likely but perhaps not by much.

5-day outlook — bearish-neutral SPX 1100-1130
30-day outlook — bearish SPX 1000-1080
90-day outlook — bearish SPX 850-950

As Eurozone fears retreated last week, the US Dollar surrendered a good portion of its recent gains closing under 86. While I expected some pullback early on the Venus aspect, I did not expect the decline to be this severe. I underestimated the effect of the aspect of Saturn (4 Virgo) on the natal Sun (4 Scorpio) in the natal chart. This is a bearish influence to be sure and will likely continue to dog the Dollar for another week or so before moving on. As pullbacks go, it wasn’t anything particularly shocking or sudden as the decline was fairly orderly. The 20 DMA was broken early on, and now we appear to be headed for a rendezvous with the 50 DMA below 85. This is a more reasonable downside target than, say, the rising trendline off the December lows which now currently stands at 83. So more downside is likely but perhaps not that much. Daily MACD is still deep in a bearish crossover and from the look of things, may be setting up some negative divergences once it finds its footing again. This perhaps foreshadowing for the eventual collapse of the Dollar that I am expecting in Q4. RSI (45) is also slipping into bearish territory and is in the verge of becoming negatively divergent with price. For the bulls, slow stochastics (6) have at least moved into oversold territory so this may precede another move higher in the near term. One other important factor for the Dollar bulls is that volume is fairly weak on this pullback at least as seen in the UUP ETF. It is much lower than the volume we saw on the way up and hence it is an indication that most traders are maintaining their long positions in expectations for higher prices in the future.

This week looks fairly bleak at least in the early going on the Sun-Jupiter-Uranus alignment. Look for the Dollar to fall to the 50 DMA by Wednesday. Not only do we have slow moving Saturn still in aspect to the natal Sun, but transiting Mars is in aspect with the natal Rahu. This has all the makings of spike-type move, perhaps one cent in a day or more. We could see recovery begin as early as Wednesday or as late as Thursday as Mercury enters Gemini and Venus aspects the Moon-Jupiter in the natal chart. Friday could go either way, but a decline may be more likely. Therefore, the week looks negative overall. Next week looks better with gains more sustainable as the Sun-Mercury encounter with Ketu is likely to highlight the Dollar’s safe haven status again. This is likely to continue until the week of July 5-9 where another interim high is possible. Given the extent of this pullback, the next run up may only be in the neighborhood of the previous high of 88. I had been fairly optimistic in previous newsletters about how high we might get here, but since we’re likely headed back to 85 or below, another rally is unlikely to produce USDX 90 just now. That will likely have to wait until September when we get a parabolic spike amidst panic and a possible stock crash.

As bond yields normalized somewhat, the Euro emerged from the ashes and closed at 1.238. No doubt the Venus-Jupiter aspect delivered some early week gains but there was very little giveback later on as buyers continued to nibble while sellers largely stayed on the sidelines. In a sense, the bounce was quite foreseeable as the Euro had become too oversold. Slow stochastics had been hovering near the 20 line since the end of April — no less than 7 straight weeks! With last week’s pop, the Euro is now showing signs of being overbought as the stochastic indicator stands at 89. We could see more upside until the next main resistance level of 1.26 and the 50 DMA. That would still maintain the overall negative outlook on the Euro but allow for more of a technical bounce here. Since it has been rising ever since its June 7 low, the first line of support is likely the rising trendline now around 1.23. While the technical outlook is generally bullish in the short term, a quick look at the volume ought to make bulls a little cautious. Volume has been quite low on this bounce and what is more important, it has been lower than it was on the previous bounce around May 20. Prices are rising, but volume is not following. The Euro is looking good this week as the Sun is high in the natal chart in the 10th house. Wednesday and Thursday may be net negative, however, as Mercury aligns with Saturn. Another move down to retest its recent lows is likely after that as Saturn conjoins the natal ascendant. The Saturn contact runs through most of July so that is likely to put a ceiling on any rallies we may see. That said, I do not have a strong sense that we will break below the lows of 1.19 in the near term. It’s possible of course, but new lows may have to wait until September. Meanwhile, the Rupee found its footing and closed higher near 46 last week. The rebound is likely to continue this week with 45.5 very possible.

Dollar

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

Crude continued its recent surge last week closing near $78. While I had expected gains near this level (and its 200 DMA), I thought they would be confined more to the beginning of the week and the Venus-Jupiter influence. My hopes for some kind of pullback on the Sun-Saturn aspect went down the drain on Friday as oil racked up another gain. Admittedly, the aspect was not yet exact, but I would have expected it to have commanded more of a presence against the fading influence on Jupiter. No such luck. In any event, the technicals continue to improve as this close above the 200 DMA will give bulls some hope of higher prices in the future. Friday’s close was just below the 50 DMA so that will be the next level of resistance. We can see a rough looking head and shoulders pattern forming here with April’s elongated head after January’s left shoulder. This does not mean we can assume a near term price target of 84, however. The neckline is sloping down since the February low was $70 and the May low was lower — $68. We might reasonably expect the right shoulder to also be lower, perhaps in the $82 area. Volume is still a concern in the recent rally as it has consistently been lower than during May’s correction, at least in the USO ETF. Daily MACD shows a glaring negative divergence between the February and May lows which suggests lower prices in the medium term. Even if we see higher prices this week, there will likely be a death cross of the 50 and 200 DMA — a very inauspicious pattern that also points to lower prices down the road. Support is currently found in the rising trendline off the May low and now stands around $74. Next week this steeply rising line will intersect with the 200 DMA near $76 and may be the final stop on the way down.

This week looks fairly bullish for crude as the Sun aspects to Uranus and Jupiter are likely to increase speculative activity. Monday will see the Sun approach a square aspect with Uranus which should be helpful for bulls. Mercury will also be getting close to the natal ascendant in the Futures chart so that is an additional positive factor. Tuesday looks more reliably positive, however, as the Sun will apply to an aspect with Jupiter, Mercury will be exactly on the ascendant, and transiting Venus will form a nice aspect with the natal Sun. So I would look for a significant gain on Tuesday, regardless of what happens Monday. Wednesday also could be an up day, although this seems somewhat less reliable than Tuesday. Thursday looks more bearish on the Mercury-Saturn aspect and Friday may also be susceptible to declines. So there is a good chance we will see $80 this week, perhaps $82. An overall gain is likely even if we see some late week selling. The following two weeks look more bearish so we will likely trade below the 200 DMA by early July and indeed the recent lows may be retested. After making a low in early July, we should see strength return on the Jupiter aspect to the Moon-Saturn conjunction. While this is only a partial aspect, it is very close to exact so it should offset most other negative things in the chart for two to three weeks. We should expect lower highs, however, as the bearish pattern begins to assert itself.

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