Markets did not break down in the second week of our lunar Red period, and even recorded new highs.
This is a sign of ongoing strength.
What does that mean going forward?
Let’s have a look at the chart for the Nasdaq (click for larger image):
The market has closed right near the overhead resistance. That means it will not be easy to add to the recent gains, unless we see a proper breakout to the upside. The new lunar green period favors a move to the upside. The question will be: is there enough fuel left in the tank to move even higher, and more importantly: hold on to whatever gains we get?
My Earl indicator (blue line) is bottoming, indicating that there is now room for another push to the upside. But the Earl2 (orange and red line) remains bearish. This means any new push to the upside could be quickly reversed.
So, I am going to remain cautious. The trend is still up, but I would now keep my stop-loss at 3225 for the Nasdaq.
Any drop below that level would break the uptrend, and probably signal the start of a larger move to the downside.
What could trigger a downturn? Well, among many other things I would watch out for solar flares this week.
A few weeks ago, we had a post about Watching solar activity.
Watching for potential solar flares is equally important, because solar flares cause geomagnetic storms, which are known to have a negative effect on stock markets. That’s why we keep a solar flare monitor on our Solar Activity page. I watch it every day before the market opens. So what to look for?
Here is today’s picture:
First thing to know: the sun has a slow 27 day rotation period, and sunspot areas move from left to right in the picture. Most sunspots are harmless, but bigger sunspot groups can release solar flares, including the rare and dangerous X-class flares.
So, when a big sunspot group becomes visible at the left of the picture, then we know it will come near the middle of the picture after about 7 days and then it will be pointing right to us. If an X-flare happens when our planet Earth is right in the “crosshairs”, then a massive geomagnetic storm occurs. This can knock out satellites and cause blackouts.
Historic examples are the Solar storm of 1859, the May 1921 geomagnetic storm, the March 1989 geomagnetic storm (blackouts in Quebec), the Bastille Day event, the Halloween storms of 2003
The stock market usually doesn’t respond well to X-class flares (probably because of the risk for economic damage).
* March 6, 1989 storms: S&P 500 dropped 2% over the next two weeks.
* Juli 14, 2000 (Bastille Day Event): S&P 500 dropped 100 points (~6%) in the next two weeks.
* Oct 19, 2003 (start of Halloween Storms): S&P 500 lost 30 points (~3%) in one week.
The most recent X-class flare that came our way was on October 24, 2012 and the S&P 500 lost 60 points (~5%) over the next two weeks.
The market doesn’t always lose 100 points, but usually there is some effect in the market after an X-class flare.
The good news is we have tools to anticipate when X-flares might come our way.
As you can see in the current flare monitor picture (above), a big sunspot area (number 05) has appear on the left side. The table on the right shows you that this is a dangerous sunspot group. The risk for M-class flares is 18% and the risk for X-class flares is 6%. As this group will probably remain in view for another 10 days, we better keep an eye on it.
Good luck,
Danny
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LunaticTrader 
Hi Danny
Another question
Looking at your SSN Prediction chart,sun spots fall till the 21st April.
(thats my wedding anniversery so not too sure how lucky it is)
The Sun revolves in 28 days. How is it possible to predict SN for more than two weeks??
Bob
Hi Bob,
Sunspot areas come and fade away, but that can take several months (especially in the 2nd half of a solar cycle). So a new sunspot group that is visible now, is quite likely to be visible again after one month, and probably also after two or three months (but by then it is probably going down in activity).
We also have daily photos of the other side of the Sun : e.g. http://stereo-ssc.nascom.nasa.gov/beacon/latest_256/behind_euvi_195_latest.jpg
While we can’t count the sunspots on the other side, we can see the active regions and whether they grow or not.
So, that’s how some forecast can be made for several Barthel rotations into the future. What it cannot do is predict when new sunspot groups will appear, and that’s why the sunspot forecasts are often wrong by a fairly big amount. But it is better than nothing.
Danny
Thank you
Hi Danny
Thanks .Every Monday I learn a little bit more.
I assume a solar flare should be centered to have the most effect.
05 looks a bit too far south to reall hurt us.
I am reading David Williams “Financial Astrology” which I find a bit slow.
Is there something on offer that is easier to read?
Bob
Hi Bob,
The 05 area is still near the side right now, but once it comes more to middle (by the end of this week) there is definitely risk for a direct hit towards Earth. We should not see it like a gun shooting right vertical off the Sun’s surface, it’s more like a pepper spray that can hit us as long as it is somewhat aimed in our direction.
For example this is a picture of the X-flare from the Bastille Day Event (July 2000) : http://www.spacetoday.org/images/SolSys/Sun/BastilleDaySatViews/SOHOBastilleDaySolarMax2.jpg
As you can see this was as much to the North as the current area 05 is to the South.
Actually it is quite rare to get sunspots that are right on the Sun’s equator. In the beginning of a solar cycle the sunspots appear closer to the poles and as the cycle progresses they appear gradually closer to the equator. But once they are almost at the equator the solar cycle is done (and the next one starts near the poles again). This is also the reason why the peak of geomagnetic storms comes about two years after the sunspot peak. In the second half of the solar cycle most sunspots are closer to the equator, and so coronal mass ejections (CME) are more likely to be in our direction.
I will try to do some post on useful financial astrology books when time permits.
Danny