A reader has asked about the supermoon we had over the weekend. Does it affect stocks in a certain way?
A supermoon happens when a full moon occurs near its closest point to the Earth. This makes the full moon appear bigger than normal. We get one about every 14 months, and they are easy to spot in our Lunatic Trader software:
The thick blue line shows the distance to the moon, so if it is at minimum when the moon is full, then it is a supermoon.
I have looked up the supermoons for the last 60 years, and they did not have a negative effect on stocks. In fact, the lunar red periods containing a supermoon have on average been quite positive for periods stocks, much better than the ordinary lunar red periods. I also checked the lunar green periods following a supermoon, and no negative effect was found either. So if anything, an upcoming supermoon is generally a reason to buy stocks, not sell them. Of course, you will have occasions when stocks drop around a supermoon, as is also the case now, but historically that has been the exception not the rule. Anyway, the next supermoon is coming up for August 10th, 2014.
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In the stock market we have seen some significant drops after the market failed to climb back to the May highs.
Our lunar red period has only a few more days to go, so we can now look for a rebound to start in the next green period. If the market continues to be weak in the next few weeks, then we have probably seen the highs for a while.
Let’s have a look at the Nasdaq (click for larger image):
We have a fairly clear situation in this market. The 3300 level is the next line in the sand. A close below that level would open the door for a more serious decline. A break back above 3400 would signal that the rally is still alive. If we are still above 3300 by Wednesday, then chances for another rally will go up.
My Earl2 indicator is still weakening, so we wait for some bottom there. But the shorter term Earl is probably painting a bullish divergence, which suggests that we are going to get a short term rebound over the coming weeks.
Let’s also consider this. Stocks, bonds, gold and commodities have all dropped in recent weeks. This means investors have raised a lot of cash. It is unlikely that they will continue to sit on that cash for very long, since cash earns nothing. So, where are they going to put the money next?
Short answer: I think most of that money will flow into stocks as soon as the market stabilizes, simply because there are no other good alternatives for the moment. Artificially low interest rates and QE have made the bond markets completely unattractive for the longer term. And commodities remain weak because the economy remains weak.
And that’s probably not going to change any time soon.
Be well,
Danny
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LunaticTrader 
yep
dnt understand that erl ….
Can you tell us what you are using for Earl and Earl2 Danny?
Hi Chris,
The Earl and Earl2 are proprietary indicators, so cannot tell much about it.
I have developed a few other ones, which I do not show yet.
I may publish more about my indicators at some point, but I would have to think on how to do that.
I do plan to set up a permanent page here on the blog, explaining more on how to use them.
Danny