MARKET RADAR: Stocks’ Full Moon Indication, Gold Oversold and Oil below $80

Saturday, December 18, 2010

By Bill Sarubbi


The US indices have exceeded the former high. The daily graph shows that the S&P has broken out of the formation that it was in, triggering Donchian’s 4-week trading rule.

That is: if a market does not make a new high or a new low over 4 weeks and then breaks out, then take a position in that direction.

If the market breaks out to the upside, buy. If it breaks to the downside, sell. The current break to the upside implies a target of 1270. And, we are in the seasonally strongest month of the year. The single most bullish time period is the 3 weeks beginning on December 15th.

Thus, we can set objectives of 1270 on the low side. Presently, gains are very muted due to the high degree of optimism as represented in the investor opinion polls.

The date of December 21 was mentioned last time for 3 reasons. First, it is the Winter Solstice, one of the seasonal 4 seasonal turns that W.D. Gann advised us to watch for turning points. Also, it is the date of full Moon. And, this lunation is also a lunar eclipse. Thus, there are 3 indications that this day will be volatile or a turning point.


In the last week, oil pulled back to the support line in text book fashion. Note that the momentum oscillator shows a series of higher lows. This implies higher oil prices. The rally has carried into the 17th-26th time period. The cycle makes a top in that time period. The weekly graph shows that oil is now up against the prior high and the 50% retracement level of the entire 2008-2009 decline. I doubt that that oil can break through this high 80s price level now.


The gold cycle bottoms now and rises to the 26th. Daily gold is now oversold, so it appears that the metal will rally in the next week.

Remember that:

• There have been more highs in gold in the month of December than in any other month.
• The annual high for any year is in the 3rd week of January.

So no longer-term gold positions should be taken right now because the reward-risk ratio is unfavorable and price is likely to turn down again. The next upside objective over the short-term is $1440.

Bill Sarubbi, a strategist and portfolio manager currently operates his own business from Europe. He spends most of his time in Vienna, London, Tokyo, and Abu Dhabi.

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