Saturday, August 20, 2011

A slow motion crash?: markets fall with Saturn

They say that when you're in a car accident, everything slows down. You become acutely aware that it's going to happen, and your senses heighten to take in the details as it all unfolds. These days the stock market appears to be involved in its own version of a slow motion accident. Stocks fell for the fourth straight week last week as the meeting between Merkel and Sarkozy produced little in the way of tangible solutions for the European debt crisis. In New York, the Dow fell more than 4% closing at 10,817 while the S&P500 finished the week at 1123. It was a similar story in Mumbai as the BSE-Sensex lost 4% closing at 16,141 with the Nifty ended the week below the 5K level for the first time since 2010 at 4845. While the extent of the late week declines were a little surprising, I was correct in my forecast for gains around the early week triple conjunction of Sun, Mercury and Venus. Most markets rose into Wednesday around this bullish alignment, but once the planets began to separate and weaken, the selling resumed. As I noted in last week's post, the Rahu aspect to Mercury created more the potential for more uncertainty and opened the door to unexpected and sudden developments.

With fear and anxiety rising over the renewed possibility of a recession, the declines have for the most part been fairly orderly. The 500 point daily swings in the Dow notwithstanding, we have not a proper crash yet, as the correction has been marked by a series of down days with the usual number of rebound up days sprinkled in to keep people guessing. The absence of any big news shock-type crash event has allowed the decline to inflict its damage piece meal. Most investors have largely stayed in the market hoping that this gradual decline will eventually turn around.

But as I have been suggesting for a while, the planets do not favour a reversal higher any time soon. Saturn the pessimist is very much in control here as it comes under the dual influences of Mars and Ketu. Both Mars and Ketu are considered negative and tend to bring out the worst in Saturn, i.e. excessive fear and caution. The Mars-Saturn aspect has been gathering energy over the past few weeks and may well peak this week as the exact aspect occurs on Thursday, August 25. The Saturn-Ketu aspect isn't due to be exact until September 23 so there is some reason to expect that the current negative outlook won't change significantly in the near term. Nonetheless, the first (slim) chance for a reversal will occur after Thursday.

What's doubly problematic for the markets right here is that Mercury, the planet of trading and commerce, ends its retrograde cycle on Friday. Its direct station at 24 Cancer therefore still falls under the influence of Rahu at 26 Scorpio. This increases the possibility of more unexpected movements in the markets and is generally a negative influence, especially given the Mars-Saturn square aspect. Coincidentally, Fed Chair Ben Bernanke will make his annual speech from Jackson Hole on Friday morning -- just hours after the exact Mars-Saturn aspect and hours before the Mercury direct station. The proximity of these events increases the odds that his speech will move markets significantly, although the direction is somewhat less clear. We can see some positive aspects in play that day such as the Sun-Venus aspects to Uranus and Pluto. However, the Mars-Saturn square is about as bad as it gets. But since it will be separating from its exact aspect at the time Bernanke is speaking, it is possible it will have less negative impact. Bernanke is expected to announce some kind of new policy to help the flagging US economy but it is unclear just what he has in mind. Since expansionary Jupiter turns retrograde on August 30, it seems more likely that Bernanke will offer some new program to increase liquidity and credit availability. However, it seems less likely that any new program will have the same positive market effect as last year's QE2 announcement.

The bottom line is this Mars-Saturn aspect could well produce more downside this week. It also increases the possibility of some larger, crash-type moves. I'm not saying a crash is probable, but the presence of these difficult aspects increases the odds of a crash from the usual 1 in 1000 to something quite a bit higher, like 1 in 4. That's no where near probable (50%+), of course, but it is something to consider. Perhaps 2011 will be remembered as the slow motion crash.