Week of May 4 – 8 v. 2/18

Stocks in New York extended their spring rally last week as investors were cheered by a series of positive earnings reports.  After overcoming some bearishness early in the week, the Dow ended at 8212, its highest level since early February, while the S&P stood at 877.  The new highs were somewhat surprising, although the basic contours of the week were not, as we had forecast weakness for Monday and Tuesday on the Mars-Ketu-Pluto with gains later on.   What was most disappointing is that the declines were quite mild, as the markets traded only briefly below 8000/850 on Tuesday and then bounced back after that.  Wednesday was the big up day, with the bulls in control until Thursday morning.  This largely coincided with our expectations for gains with the approach of the Venus configuration with Ketu and Pluto.  Bulls asserted their primacy again on Friday as the Moon joined the positive Venusian energy by forming a trinal aspect.  It seems that the main fuel for this market is still the favourable Jupiter-Uranus-Neptune alignment and it is largely overriding most other short lived negative aspects.  Clearly, negative transits from fast moving planets such as Mars will do little to slow up the benefic juggernaut that has been in control for almost two months. What is required is negative energy that is longer lasting and therefore more powerful.  And that is where we may find ourselves this week as Mercury turns retrograde early on Thursday before the trading day.

While Mercury is a fast moving planet, its velocity around its retrograde stations is much slower, as it actually comes to a full stop for several hours early on Thursday morning, May 7.  Interestingly, the results of the banking stress tests will be finally released that day, so the Mercury factor here increases the chances for a negative market reaction.  Retrograde stations often signal the beginning of difficult periods for stocks because investors start to second guess their thinking and assumptions.  In astrology, the nature of retrograde Mercury (which will be in effect from May 7 – 31) symbolizes going back to tie up loose ends, revisiting problems that were never worked out properly the first time around, or indeed, retracing one’s steps.   The analogy for stocks is obvious, so overall, the Mercury retrograde increases the likelihood for a significant retracement for stocks.  As noted in previous newsletters, the start of this retrograde cycle is made somewhat more problematic for stocks because of the presence of the aspect from disruptive Rahu to Mercury.  The Rahu influence can indicate distortions in information and misunderstandings, prominent rumours, and greater volatility.   Ahead of Thursday’s potential for a mercurial reversal, however, stocks could rise further on Monday, as Venus forms an exact aspect with Ketu.  Either Tuesday or Wednesday could see a significant decline (>1%) after Venus has left the scene and the Moon enters Virgo. The best opportunity for a significant pullback (>2%) should be on Thursday or Friday after Mercury has actually shifted directions.  I don’t expect anything too huge, and we have to allow for the possibility that the week overall may not even be negative. The bullish energy has confounded my expectations too often lately, so we have to be aware of more upside potential.  Nonetheless, my best guess is that Friday’s close will be lower than last week’s.

This bull leg is very real and should not be underestimated even with the prospect of a troubled Mercury retrograde cycle.  From a technical perspective, the market is sending mixed signals.  Volume in this rally has been fairly average but not really impressive and moreover has not increased over time, suggesting that participation has not broadened which one would expect in solid bull rally.  It should also be noted that Friday’s modest rise came on decidedly below average volume.  The SPX remains near some important resistance points, and has matched its February highs around 870-875.  The Dow has performed less impressively and is currently below its February highs by about 3%.  In both cases, the indexes have not yet broken to the upside in a clearly bullish signal.  If they fail to do so this week as we think they might, then the market will likely sell off in response.   Even if it manages to get as high as 8500/900 early this week, I would skeptical about its chances for staying above those levels for the rest of the week.   I think this week will see the beginning of meaningful period of consolidation with an increase in downside risk.  The direction is unlikely to be one-sided, however, as some gains looks likely for the early part of next week (May 11-13).  Weakness will likely return towards the end of next week with an increased likelihood for more negative sentiment around the Saturn direct station on May 16.  Therefore, the following week of May 18-22 may be bearish overall.   The last week of May (25-29) when Jupiter conjoins Neptune is looks fairly bullish so we may be off to the races once again after that..  I will re-examine the question of the interim bottom here next week.

After some early strength, the US dollar was mostly weaker last week as it again closed below 85. This was in keeping with expectations as we foresaw Monday’s gains on the Sun-Mercury aspect in the USDX chart. The declines afterwards also did not come as a surprise as the transiting Mars hit the natal IC as the appetite for risk grew and more investors pulled their money out of the greenback in search of better returns. The dollar remains in a technically precarious place as it has fallen through the short upward price channel off the March lows. Nonetheless, it remains above those March lows of 83 and can still be considered to be trading in a longer upward price channel formed from the lows of last July and December. This week may well see begin with more weakness in the dollar, and we can’t rule out a retest of 83 as Mercury will be slowing to crawl and oppose the natal Saturn. But there is a good chance of a rebound from Wednesday on, as Venus will conjoin the IC. This is usually a positive influence and may well offset the early week Mercury-Saturn gloominess. However, the dollar is likely to slump back towards 83-84 the following week. The best window for dollar strength appears to be May 18-22 when Venus will aspect the powerful Mercury-Uranus-Ascendant clustering in the natal chart. The near term chances for 90 appear remote indeed, but 88 is still within reach as long as it does not fall back to 84 next week.

The Euro rallied last week to close near 1.33 on the positive vibes emitted by the Venus-Ketu aspect and the building of the Jupiter influence on the Moon in the natal chart. This Jupiterian rise was very much expected after Monday’s weakness from the Mars-Ketu aspect had activated the angles in the natal chart. Jupiter is likely not quite done with its bullishness since the aspect has yet to move away from the Moon so we can look for more upside early this week, perhaps to 1.35 again. However, the Euro will be prone to corrections Thursday and Friday as Mars squares the natal Sun, and Mercury goes retrograde in close aspect to natal Neptune. Whatever declines it sees this week, the Euro is likely to erase them next week as the Sun will aspect the natal Jupiter. The Indian Rupee closed mostly unchanged on the week near 49.5 after trading above 50 earlier in the week. We may see it trade above 50 again by Friday after Mercury goes retrograde.

After some early losses, crude oil bounced back yet again and closed above $52 and was up overall on the week. This rubber ball-like action to crude was entirely expected, as Monday and Tuesday’s decline coincided with the Mars-Ketu aspect that pushed it under $50. The bearish role of Mars was also seen through its 8th house aspect to the Moon-Saturn conjunction in the natal chart. The rebound was a little stronger than expected, however, as the Venus influence was magnified by the Moon’s supportive aspect to Rahu. Wednesday’s rally in particular was the beneficiary of this highlighting of the water signs (Cancer and Pisces) which provided a boost to crude oil, that blackest of liquids.

This week will likely see strength early on, and I would not be surprised to see crude take a run at its recent highs of $55. Venus conjoins the natal Rahu in the ETF chart so there may be a lot of speculative optimism. At the same time, we should see at least one big down day Tuesday or Wednesday as Mars conjoins the natal Sun in the Futures chart. Some weakness later in the week is also possible, although I wonder if the Mars-Mercury conjunction is enough to do the job. It will still be two degrees away from exact and given the proximity of the Jupiter aspect, it’s conceivable that crude may not see much negative price action this week. It is unlikely to reach $48, and I would also think it has a good chance to stay above $50 as long as it rises Monday. The following week (May 11-15) looks quite bullish for crude again, so most likely it will move back up to $55 and even above it. Even with another dip down under $50 likely May 18-22, the medium term outlook for crude continues to look mostly bullish.