Four Pillars Finance

Chinese astrology cycles for market timing

Archive for May, 2010

Long term prediction chart

Posted by Danny on May 26, 2010

Today we take a fresh look at our long term prediction chart for the Nasdaq Composite index.
Our most recent version of this chart dates back to September 2008 and can still be found here:
http://www.fourpillars.net/finance/pdf/naslong08.pdf

***

Here is our newly updated chart, with some major trend lines drawn on it (click on the image to get full size picture):

The market did drop out of its long term uptrend shortly after we published the 2008 version.
The March 2009 lows probably mark the end of a 7 years “lean period”.
Stocks obviously became very unpopular in early 2009, a typical sign seen near the end of a lean period. (see the 2006 version of this chart for a discussion about these 7 year periods)

Since then we have rebounded strongly and the market has gone up to touch the old uptrend line again.
I see two possible scenarios going forward.
1) If we are in a new 7 years “fat period” then look for the market to rise into 2016.
2) An ongoing bear market would probably see us drift downwards till after 2020.
I consider the first scenario a 75% probability.

Confirmation of the first scenario would come if the market breaks out above 2500.
That would confirm an ongoing bull market from the 2009 lows, and it would invalidate the down trend lines you can see in the chart (thin blue lines).
The ongoing bear market scenario would be confirmed if we drop below the up trend line that goes through the 2009 lows (thin red line). This important support line is currently near the 1700 level.

***

Were the lines cross in this chart we have some interesting points that give us some clues from a timing perspective. They are marked 1, 2 and 3.

Point 1 corresponds to September 2011 and will likely be a bottom.
Point 2 (February 2013) and point 3 (December 2015) are more likely to become tops.

Point 1 could be as low as 1100, if we enter in the bearish scenario.
That would make a double bottom with the 2002 lows.
If Point 1 is at 1700 or higher, then we are probably in the bullish scenario
Then point 2 could go as high as 3500.
And point 3 can be up to 5000, where it would make a double top with the year 2000 highs.

We will keep an eye on this chart and let you know when there are any new developments.

Regards, Danny

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Overall Outlook

Posted by Danny on May 21, 2010

Markets have gone in fast moving mode, and many readers are waiting for our update.
So today I will do an outlook for most of the markets we cover.

Stock market is going down, as we expected for the April-May Metal months period.
As we said in our New Year predictions , look for moves to be of the fast an unexpected variety, sudden shocks.
Last week’s “flash crash” shows exactly what that means.
A look at the FPF prediction chart for Nasdaq shows us mostly red till the end of the year.
June or July is giving us the best odds for some rebound action, but most likely we are going to see more downside action later this year.
Stay out of stocks, or use options protection for your portfolio.

Gold stocks have done well considering the circumstances, but are now coming under pressure too.
XAU index is down to 165 (from a recent peak of 190). I would get out of gold stocks too if the XAU falls below 160. This locks in a small profit if you took our recommended buy at 150 level.

Euro-US$. As we have been saying all year long, avoid the Euro.
Right now it seems to be holding on to the 1.24 level. Expected bottom period for the Euro is coming Water month, next June-July.
We may still get to the 1.15 level, as we mentioned last February.
It didn’t look very realistic back then, but here we are.

Treasury bonds are rising in a flight to safety reflex. This provides an excellent opportunity to get out of them at an attractive price. As we mentioned before, our cycles turn down for bonds in the second half of this year.
People may start realizing that not only Greek government debt is risky, in truth most governments are sitting on debts they will probably never pay back. When that gets priced in you will see much lower bond prices.

Oil prices.
Next June-July is our projected bottom period for oil.
Oil is going down right now, so a nice buying opportunity is shaping up here.
Stay tuned for more on this one.

Good Luck,  Danny

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Outlook for Dollar and Bonds

Posted by Danny on May 4, 2010

The Euro has continued to go down against the US dollar, and is currently trying to hold on to the 1.32 level, one of the support levels we mentioned in our previous outlook for the Euro/US$

It remains to be seen if 1.32 will hold.
With more than a month to go till we get into the Water months bottom period for Euro/US$, there is room for the Euro to drop even further.

***

Our recommended bond trade (TLT) was stopped out for a small loss.
Bonds should be going up (=interest rates down) according to our cycles, but they are barely holding level. This is usually a bad omen going forward.
Our upcoming bottom period for bonds, next August-September, could become rather nasty.
So, better get and stay out of bond markets.

Regards,
Danny

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