Week of March 7 – 11 v. 4/10

Stocks ended mostly unchanged after fairly volatile week as the Libyan crisis became old news and the February payroll report offered new evidence for inflation. The Dow edged slightly higher closing at 12,169 while the S&P500 finished at 1321. As I had been somewhat equivocal in last week’s newsletter, this neutral outcome was largely in keeping with expectations. I had thought we would move higher on the Venus aspects Monday and Tuesday and indeed Monday did see a modest gain. I thought Tuesday was less reliably bullish so there was perhaps a greater risk of a decline, especially since Wednesday was not looking that good as Mercury moved into aspect with cautious Saturn. Admittedly, I was a little off in my timing here as Tuesday reversed lower right after the open, but at least I had allowed for this possibility in my bearish scenario. Most of the bearish energy was spent on Tuesday, so Wednesday was a range day with only a slightly positive close. Thursday ended up strongly bullish, and while I thought we could have a positive bias, I did not fully expect the extent of the upside here. I thought Friday might lean to the bears given the awkward placement of the New Moon, but again, I unfortunately did not quite grasp the extent of the pessimism as there was a significant selloff after the over-hyped employment report.

The market’s reaction to the employment report reveals how vulnerable equities are at the moment. After that small 3-4% dip on the oil spike from the Libya crisis, the prospect of inflation became a potential bugbear of the market as rising oil prices tend to depress economic activity and lower corporate earnings. On the face of it, the positive employment report was good news that the economic recovery appears to be gathering steam. The problem was that the jobs number of 192,000 landed somewhere in the squishy middle. It wasn’t quite big enough to generate enthusiasm since it was widely expected to be better than January’s number. But it was still big enough that it caused more investors to question what the implications might be of such growth, especially in light of the Fed’s QE2 program. Given that investors inflation antennae were also up over Libya, this jobs data provided more inflationary fuel to the fire, as oil and gold rose in response. The stronger the inflationary pressures become, the quicker the Fed will end the treasury buy back program and the sooner it will tighter rates. While few observers expect the Fed to end QE2 ahead of its scheduled completion in June, it may be increasingly regarded as an inflationary policy that will hasten rate hikes down the road. The market thus far expected rates to begin to rise off historic lows in 2012 but if inflation continues to stir in the bowels of the US economy, it could well be sooner. That would frighten equity investors and likely cause a reduction in exposure. Certainly, the astrological perspective would tend to support that scenario where the market is confronted by a negative surprise and sells off in reaction. We are currently in one of the more probable time windows where such a bearish reaction is more likely. The others are August-September and again in November-December.

Technically, the main indexes remained locked in the rising wedge. As long as the SPX trades in the wedge, the technical case for the bears remains somewhat hypothetical. Of course, I noted last week how it was already showing signs of weakness by briefly poking below the support line on the logged chart. It’s difficult to know how much to make of it, but it’s nonetheless worth noting. The non-logged chart shows prices adhering more faithfully to trendline support as Wednesday’s open touched this line exactly at 1304. Since stocks did bounce higher after this touch, it makes sense to follow this line as the more telling line of support. Bulls continue to move in and buy the dips resulting in a series of progressively higher lows over the past week. So as long as the trend line holds support (next week at 1310 or so), bulls may feel relatively safe. But if and when that trend line is violated, it would be a whole new ballgame. One possible scenario might be a break below the trend line and a quick fall over another one or two days to the 50 DMA at 1296. This would likely bring in a lot of buyers since it would be very close to the bottom Bollinger band and also close to the Feb 23 low. Prices might bounce back to the trend line and then resume their decline. That is one obvious possibility at any rate.

So not much has changed in the overall technical picture. The indicators remain fairly ambivalent by my reading, and the weekly Dow chart still offers the best reason to be bearish. RSI (68) hasn’t budged too far from the overbought zone and while nothing is stopping it from moving higher, it seems overdue for a pullback. Support in this chart may be initially centered around the 20 WMA at 11,641 as November’s correction ventured towards that line. The more pivotal support level is likely the 200 WMA at 10,967. This has been an important line in the sand between bulls and bears over the past several months and it will likely do so again. In the event this correction finally gets rolling in the coming days and weeks, this will be an obvious downside target that will prompt some sensible short covering. Whether or not it holds remains to be seen, although I would try to err on the side of caution here. Treasuries continue to trade in a fairly narrow range at the moment as the bond vigilantes are weighing their options. Inflation is a worry, but equities engender their own risk if the recovery is weak and wages continue to lag. The 30-year is hovering around its 50 DMA which may offer some resistance. I believe it would require a couple of closes below 4.50% to signal that the bond market was on board with the Fed’s vision of the recovery and its role in it. I don’t expect much more downside to yields here as the late March and early April period look more turbulent for bonds. In the event of a sudden equities decline, there could be a shock move into bonds that might push yields down. If this occurs, it could conceivably go all the way down to the rising trend line off the August low which would be around 4.3%. Yields could then resume their upward climb. The action on the $VIX reinforced the notion that we are in a holding pattern generally as it remains trapped between the 50 and 200 DMA. The recent move above the lows of 15-16 was significant but the inability to close above the 200 DMA showed the limits of the corrective move in stocks thus far. Nothing much will change unless it closes above 23. It looks like we may have closed some of that gap at 17 last week, although there is still a little bit to go. Maybe we close it this week as stocks attempt another rally.

There is a reasonable probability of another rally attempt this week, perhaps around midweek and the Mercury-Uranus conjunction. Monday features a Venus-Pluto aspect and the tail end of a Sun-Saturn aspect. Both may have a depressing effect on sentiment, although neither look especially strong or reliable for that matter. However, the Moon does form a close alignment with the Sun and Saturn near the open on Monday so that may increase the likelihood of a decline in the morning. But I am less certain if it lasts until the close. As we move into midweek and the Mercury-Uranus conjunction, there is a better chance for gains. I still wouldn’t quite put it in the same league as last week’s Venus-Uranus aspect, but it still seems positive. Tuesday may be a better bet for a gain, although Wednesday also has the distinction of an apparently bullish Venus-Jupiter aspect. So if the bulls are running, they could enjoy two up days in a row. Nonetheless, I would be somewhat wary of Wednesday since it will be in the aftermath of the Mercury-Uranus aspect. Perhaps it starts bullish and ends flat — that is one possibility. The end of the week looks less positive and I would expect at least one down day here. Mars is approaching its aspect with Saturn so that may increase tension and dampen sentiment. It’s not yet exact, so I don’t want to trumpet its downside potential too much, but it’s definitely not bullish looking either. Friday is perhaps more bearish than Thursday, although I would be cautious both days. Overall, I’m not sure if end higher or lower as the market may well stay in the wedge yet again this week, although Friday may be the best opportunity for a breakdown. A more bullish unfolding would see a slightly lower open Monday and then reversal intraday. The rise could extend into Wednesday and challenge the highs of Feb 18 at 1340. Friday would see the SPX back down around 1325-1335. A more bearish unfolding — which I think is more likely — would see support tested Monday at 1310 but a partial recovery by the close. We put in a high on Wednesday around 1330 and then head back down to 1310-1320. That would be a negative week overall, although not by much. It would also likely keep the wedge intact. Again, I do think the market is more susceptible to sudden declines as we move deeper into March so there is the chance that the Mercury-Uranus conjunction and its aftermath could bring on some larger moves down, although they are not quite probable.

Next week (Mar 14-18) has a good chance for a down day on Monday on the Venus-Mars-Saturn alignment. Mars aspects Saturn exactly on this day so that is the main bearish fuel, although I would acknowledge the co-presence of the normally bullish Venus is a source of some ambivalence. It could either diminish the negativity or it could end up amplifying it — I would tend to expect the latter. Tuesday will be a fascinating day as Mercury conjoins Jupiter. Usually, this would be a no-brainer bullish aspect but in this instance, it will occur in fairly close opposition to gloomy Saturn. So that reduces the reliability of the bullish influence on the market as I see it. I still think we should expect a gain here, although there is a chance it could end up going south in a big way. A more reliably bearish aspect will occur later in the week when Mercury does exactly oppose Saturn. So I would expect the bears to carry this week and we have a good chance of breaking out of the wedge. The following week (Mar 21-25) may begin with a significant move on the Sun-Uranus conjunction. This may start positively but stocks could well reverse by the close. I expect a mostly bearish bias here until perhaps the end of the week and the Venus-Neptune conjunction. The Jupiter-Saturn opposition becomes exact on March 29 so that will likely keep stocks under pressure into April. There is a parade of planets transiting the sign of Pisces opposite Saturn in April. My best guess is that this will weaken sentiment and push prices lower, perhaps by a lot. Of course, there is always the chance that Jupiter might win this tug of war with Saturn and stop the correction in its tracks in early April and then take prices higher. I don’t think this is a probable outcome, but it is nonetheless possible. The end of the Mercury retrograde cycle on April 22 may also mark a significant point. The planets generally look difficult before this date, so that is one possible candidate for an interim low. I do expect a significant rally this spring but I expect it will begin after this date. May and June generally seem bullish, albeit with some wrinkles especially in mid-June. As before, August and September look like another significant downward move that may well form lower lows.

5-day outlook — bearish-neutral SPX 1310-1320
30-day outlook — bearish SPX 1250-1280
90-day outlook — bearish SPX 1200-1280

The Dollar continued its tour of Skid Row last week as it closed lower again last week at 76.4 right near a critical support level. The Euro climbed to 1.398 while the Rupee ended the week at 44.86. As unnerving as this bearish result was, it was not very surprising as I thought the strong Venus influence would likely boost risk appetite and reduce the greenback’s appeal. The exact Rahu-Uranus aspect occurred on Friday so the Dollar fell all the way into that aspect. Will it turnaround now that this aspect sits right across the Euro’s ascendant? It is certainly an intriguing coincidence that the Dollar should fall down to a key support line that dates back several years in the same week that there is an exact aspect between slow moving Rahu and Uranus that sits precisely on the most sensitive point of the Euro horoscope. As inflation talk takes on a more serious tone these days and ECB chair Trichet has publicly mused about raising rates, the Dollar is under the gun. The Fed is conspicuously trying to devalue the Dollar in its attempts to kick start the economy while commodities soar as more investors seek out a viable store of value. Will Bernanke & Co. simply let the Dollar fall indefinitely and risk its reserve currency status or will they try to defend by removing liquidity from the system? From a technical perspective, it’s clear that we have arrived at a time when we can proffer an answer to this question. If it falls further, it will likely quickly slip to the next level of resistance at 74 set back in November 2009. If that breaks down, a quick trip to 72 may be in order — the old summer 2008 low before the market went up in flames. Interestingly, we see commodities such as oil and gold making new highs now just as they did back in mid-2008 when oil peaked at $147. We are clearly approaching a reversal point but whether it turns here, or at 74 or at 72 is an open question. RSI (31) is rapidly approaching the oversold level. While this decline has been difficult to stomach for bulls, the prospect of a double bottom in the RSI should offer at least a glimmer of hope that a rebound is in the cards.

So will the Dollar bounce here are plunge like a rock? The astrology suggests that the midweek Mercury-Uranus conjunction could very well bring more downside to the Dollar. While Monday may be somewhat bullish, Mercury will be putting the cherry on the top of the Rahu-Uranus aspect that has been activating the Euro chart recently. For this reason, we may have a few days of downside that seems likely to probe below 76. Later in the week, the Dollar may firm up somewhat, although I’m not holding my breath. Next week looks better for the Dollar as the Mercury-Jupiter conjunction set up in fairly close aspect to the USDX ascendant. It will be a long road back to 80, but there is some reason to expect this rebound in the second half of March, April and into May. Watch for a possible interim high in late May. While speculating on levels is tricky, I do think there is a good chance the Dollar will once again be back above 80 (1.30) and it could well be higher than that.

Dollar

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

As Libya sank deeper into the dreaded civil war scenario, crude oil surged another 7% closing above $104 on the continuous contract. While I saw further upside on last week’s Venus aspects, the extent of this rise was surprising. Obviously, I have greatly underestimated the size of this rally. Part of the explanation lies in the favourable position of Jupiter in the crude Futures horoscope as it approaches its conjunction with the Sun this week. Once that conjunction is out of the way, I believe there will be a reduction of upward momentum for crude ahead of an eventual reversal. That said, it’s still unclear to me how fast it will take to regain its previous levels. It is possible that crude will stay elevated for several more weeks. Technically, crude looks very bullish as it has broken above its rising channel. This could either be the beginning of a new leg higher or it may be an unstable blow-off top that goes parabolic and then like a rocket, reverses sharply and falls back to Earth. For several weeks, crude was trapped by its 50% Fibonacci retracement level around $91. This was the halfway point between the all-time high of $147 and the late 2008 low of $35. We take note of the fact that crude is now just a little above its 61.8% Fib level of $104. The next Fib level is 76.4% and that translates into $120. All the technical indicators are very bullish as RSI tops out at 78. It is unlikely this kind of momentum can last very much longer although the more important question is at what level might we see a consolidation. Besides the psychologically important level of $100, it may be helpful to watch $96-97. That represents the top of the rising channel over the past few months. If bulls can keep prices above that level, then it will mark a hugely important development in the oil market. This will point to a situation where medium term prices move between $95 and $120 or higher, depending on one’s disaster scenario for Middle East unrest. If it falls below $96, however, then it may quickly resume its normal trading range. We should recall that a similar price explosion occurred in 2008 which eventually collapsed in the chaos of the financial meltdown. This is not to say that a similar outcome is likely here, but we should be aware how quickly commodity rallies can go bust.

This week may see another move higher on the midweek Mercury-Uranus conjunction. While Monday could go either way, Tuesday and Wednesday do seem to favour the bulls as the Jupiter-Sun conjunction takes hold. While some late week profit taking is likely, there is nonetheless a good chance for a positive outcome this week. Next week will be very interesting as Monday’s Mars-Saturn aspect should not be positive for most asset classes. While I am expecting a major equities selloff at that time, I’m less confident about crude following suit. One reason is that crude and stocks have been moving inversely ever since the beginning of this Middle East unrest. If stocks are likely to fall, then there is a good chance it’s due to rising crude prices. It’s not a perfectly inverse correlation, but the probability seems reasonable. So it is quite possible we could see $120 by the middle of March and prices could stay quite high until early April. However, I do note that the medium term influences look less favourable. The best chance for a significant decline occurs in the week of March 21-25. This looks like quite a serious drop – perhaps 5-10% — and it could conceivably mark the end of this parabolic move higher. That said, we could see another significant spike in early April on the Mars-Uranus conjunction followed by another sharp decline. It is unclear if this will mark a new high. Based on my understanding of the Libyan horoscope, however, the early April time frame may well represent a significant development, perhaps even Gaddafi’s removal. The likelihood for lower crude prices increases as we move deeper into April and May.

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