Saturday, January 29, 2011

Markets fall after Saturn turns retrograde

Has the worm finally turned in the US stock market? The current wave of civil unrest in Egypt shook investors out of their QE2-induced complacency as the Dow broke its eight-week winning streak declining by less than 1% to 11,823 with the S&P500 closing at 1276. Indian markets fared worse, however, as inflation worries and the prospect of further rate hikes continued to weigh on investors. The BSE Sensex tumbled more than 3% to 18,395 and the Nifty ended the week at 5512.

This bearish outcome was more or less in keeping with expectations as last Wednesday's Saturn retrograde station may have helped usher in a new, more cautious investor mindset. I had thought we might have seen more midweek downside to go along with the tense Mercury-Saturn aspect, but that appeared only to manifest in more vulnerable markets such as India, China and commodities (gold, oil) all sold off significantly. This is perhaps understandable since these more speculative markets have been the biggest beneficiaries of the easy money Fed policy that has pumped up asset prices. With Saturn extra-strong here as it stands still in the sky, it may coincide with a less tolerant mood towards free spending, inflation and risk-taking -- all of which were the hallmarks of the recent Jupiter-Uranus fueled rally.

Saturn's penchant for restraint and austerity was reflected in news last week that the Standard and Poor's rating agency warned that a US downgrade may not be far off. This debt warning came in the aftermath of Obama's SOTU speech where precious little attention was paid to reducing the massive US debt. The US government is playing a risky game here as it is betting that bond markets will target other more spendthrift governments first before it has to face the music. As if to put an exclamation point on Saturn's renewed influence, Moody's downgraded Japan's debt rating as that country may soon face its own "high noon" with the bond vigilantes as its debt burden becomes unmanageable in the face of demographic stagnation.

As Saturn is now begins its backward retrograde journey through sidereal Virgo, it is due to encounter its arch-rival Jupiter in an opposition aspect on March 29. The last Jupiter-Saturn opposition occurred on May 22, 2010 in the midst of the correction that followed the May 6 flash crash. While history does not repeat itself exactly, this combination tends to be bearish and suggests a more stringent and cautious atmosphere may prevail in the market for the coming weeks. We can also expect some more unexpected events along the lines of these escalating Middle East protests as Rahu (greed, disruption of status quo) will form a square aspect with Uranus (risk, independence) on March 5. Between Saturn's pessimism and this unpredictable Uranian quality, it should prove to be a very eventful time.

The highlight this week is the Sun-Mars conjunction on Friday, February 4. These two fiery planets combine about once every two years but this time around they will be in close trine aspect to Saturn. The closest aspect actually occurs over the following weekend, but they could be close enough to produce some effects during the trading week. Since all three planets are considered malefic, this is definitely an alignment that "bears" close attention! Ahead of that, however, Mercury and Venus will combine their more positive energies in a configuration with Uranus and Neptune that hints at some early or midweek strength. This will likely apply to most world equity markets as well as commodities such as gold and oil.