Merriman Market Analyst

Review and Preview

Once again, many of the world’s stock indices continued making new all-time or multi-year highs for much of last week. The reversal signals from the prior week (may 24-25) were again only modest in their effect, as this “blow-off” continues in many world equity markets. The fact that it would be another “fake out” followed by new highs was indicated in our daily technical signals early last week. Additionally, precious metals may have bottomed and are also starting nice reversals from lows of the past 1-3 weeks, also covered in our daily and weekly reports. Even the currencies seem to be getting into the act (i.e. signs of a possible reversal back up now, as discussed previously).

Short-Term Geocosmics

This week begins a new and long geocosmic cluster zone. Beginning on Monday, June 4, and lasting through July 1, there are 13 geocosmic signatures unfolding. There are no more than 5 calendar days between any two consecutive signatures during this span. With clusters this big, you oftentimes have 2 or 3 reversal periods within it, such as: June 5-9, when we have two big Level 1 signatures present. Since June 9 is a Saturday, we extend this period to cover June 4-11.

On June 4, Mars will trine Jupiter, which is oftentimes bullish for equities, especially if they have already been rising, as this market has. On June 5, the Sun will be in opposition to Jupiter, a very powerful Level 1 signature that has a 75% correlation to primary or greater cycles in U.S. stock indices within 10 trading days. On June 9, the Sun will square Uranus, another huge Level 1 signature. For those who study astrology, this geocosmic combination is known as a T-square between Sun, Jupiter, and Uranus. If markets rally into here, it could be an important top (perhaps primary, perhaps greater). If they start to decline into here, the amplitude of the decline may be severe, and may even continue into the middle of the month.

Last week’s report stated: “The Sun in opposition to Jupiter is a very important signature from an historical perspective. Within 10 trading days, there is a 50% correlation to 50-week or greater cycles, as reported in The Ultimate Book on Stock Market Timing Volume 3: Geocosmic Correlation to Trading Cycles. It is one of the most consistent and powerful correlates we have noted to major changes of trend in stock U.S. stock indices. In the case of the waxing square between the Sun and Uranus, its correlation to primary cycles is even greater that Sun-Jupiter opposition. It has been present in 82% of cases studied when given an orb of 11 trading days. Jupiter rules exaggeration combined with either optimism or hysteria. Uranus rules the unexpected and sudden surprises. Financial astrologers will have yet another opportunity to see if the Jupiter-Uranus square dynamic continues this unusual “blow-off” by breaking above one resistance level after another (as it has since the lows of March), or it suddenly catches - and markets do commence an impressive retreat that is long overdue.”

Long-Term Thoughts

I am going to use this section of this week’s column to answer a couple of questions from readers (and subscribers). The first has to do with my observation that Jupiter and Uranus in hard aspect (conjunction, square, and opposition) can be signature of “blow-off” markets, where prices just “blow through” one resistance level after another. During these times, no other geocosmic signatures seem to coincide with reversals down of any importance or endurance, until the “blow-off” is exhausted. That has been going on all this year in regards to U.S. stock indices (and several other world stock indices too). And the Jupiter-Uranus square has been operative since January 22. This same phenomenon happened during and after the Jupiter-Uranus opposition of August 2003 too. One reader asked about how to trade this type of market, and another asked about the conventional meaning of a “blow-off.”

Let’s approach the latter question first. Many analysts refer to a “blow-off” as a market that starts to exhibit a parabolic form to its ascension. The rally may start very gradually, perhaps at a 30-45 degree rising angle. But then the amplitude of the rally suddenly accelerates, and becomes more and more vertical, from a 45 to a 75% or more angle. But a “blow-off” in our terminology doesn’t have to be limited to a parabolic form. In terms of our methodology, a “blow-off” market is any in which a pyramiding strategy can be employed successfully (and this answers the first question too). That is, whenever a “blow-off” market takes out the low of a previous day, you can buy (add onto long positions) each time it reverses back up and makes a new high. You set your stop-loss just below the lowest price, or “isolated low” that just formed. In “blow off” markets, no decline takes out the low of a previous isolated low, or at least the low of the previous cycle of the same type. But once it makes an isolated low, it continues to rally afterwards to higher and higher highs, which is why “pyramiding” then leads to enormous profits – until the “blow-off” exhausts itself. And that is when you have to be very careful, for the declines that follow blow-off markets can quickly wipe out all the profits if one is not careful. The declines that follow are usually just as powerful in their amplitude as the rallies of the blow off itself, with one exception: the declines are much quicker than the rallies.

From a cycles’ point of view, we tend to witness “blow-offs” in the last phase of a cycle, and not in the earlier stages. In the early phase of any cycle, the market is bullish. It goes up longer than it comes down, and the low does not go below the start of the cycle. But in the last phases of a bull market cycle, the market may or may not make a new high. If it does, it can be a “blow-off.” But the important thing to note is that the decline of the last phase of a bullish cycle is the most severe of the entire cycle, whether the rally was a “blow-off” or not.

So here we are in the midst of the 14-year Jupiter-Uranus cycle. This is a quarter phase of that cycle (happen about every 3.5-years). Once again the stock market defies gravity and goers up through one resistance zone after another, and through one geocosmic reversal signature after another. And we still believe this is the last phase of the longer-term 4-year cycle, due to bottom by the end of this year. This cycle has no doubt been bullish. It hasn’t turned parabolic yet, but it may not. It doesn’t have to. It is a “pyramiding” market, when pyramiding strategies would yield immense profits while in effect. Had one followed this method of trading, there would have been only one loss (mid-March) since December 1 (last 7 months), with many, many profitable entries.