Whenever your system of investing becomes popular, it is better to shift to some unpopular method. That was the advice of John Templeton.
We saw a classic example last April, when most financial media and blogs were pushing the “Sell in May” mantra. Selling in May had worked very well for the last three years, and that had boosted the popularity of that approach. Now, most of these May sellers are covering shorts or buying back their stocks, and that is propelling the market to new highs. So it goes.
Using the lunar cycles has also worked exceptionally well so far this year. The lunar green periods have seen a cumulative 611 point gain in the Nasdaq since the start of the year, while the red periods have produced a cumulative 52 point loss. See: Performance page. But this means that watching the lunar phases could also be at risk of becoming more popular if it continues like this. Eventually, too many investors may start paying attention to new and full moons again, and that’s when we will have to become very careful.
Markets kept surging last week, and we recorded the strongest lunar green period since 2009. Is this the peak?
Let’s have a look at the S&P 500 (click for larger image):
Since the late June lows we have seen a very fast rise. This period of strength was nicely indicated by the LT Wave chart we posted a few weeks ago. This strength could continue until the middle of this week, but then weakness is likely for the rest of this lunar red period. So, I would use any new peaks around the 17th as an opportunity to take money off the table. Pending on how much downside we get in the second half of July, we could be pushing for new highs again in August. But that remains to be seen.
The technical picture remains good, but the Earl indicator is getting very high, so quite likely to start turning down this week.
PS: In case you missed it, we now have a permanent page explaining the Earl indicators.