Eclipse red period
Posted by Danny on October 7, 2013
The Nasdaq has pushed to new highs for the year last week, but other market indices like the S&P 500 and Dow Jones Industrials have acted a lot weaker recently.
The lunar green period will be ending today, and then we will enter an eclipse red period, as we are approaching a solar eclipse on November 3rd.
As I pointed out last April, the lunar red periods preceding an eclipse have a more negative expectation than normal, while the ensuing lunar green period containing the solar eclipse has a much more positive expectation. See: Eclipses and the stock market
What does that mean for the market going forward?
Well, let’s have a look at the chart for S&P 500 (click for larger image):
The S&P remains in a rising trend channel, and appears to be forming a rising wedge since May. Rising wedges sometimes end with a sudden drop. The 1670 level is going to be very important in the next couple weeks, as it has been a frequently visited support/resistance level since May, and now we also have the bottom trend line coming in at that level. So any drop below 1670 would probably trigger more selling and imply sharply lower prices ahead in this eclipse red period.
Technically the Earl indicator appears to be bottoming out, which suggests some kind of rally to start. But the slower Earl2 indicator is disagreeing and is just starting to go down, painting a bearish divergence with the early August peak.
With such a mixed picture it is generally not a bad idea to stand aside. A short term trader can put in some stop-sell orders just below 1670, or buy a few put options to benefit from a potential drop.
Remember, eclipse red period does not mean the market has to drop lower. But it is definitely a time to be very careful if you hold long positions.