When will the moon blink?
Posted by Danny on July 20, 2015
Stocks rallied strongly last week, and another lunar green period has ended with handsome gains. The lunar cycle keeps up its perfect record for the year. This is a highly unusual winning streak. If we consider the odds of correctly guessing the direction of the market over a given period at 50%, then getting it right 14 periods in a row has a 1 in 16384 chance. Just try tossing a coin until you get heads 14 times in a row.
Historically the lunar periods “work” about 60% of the time. Even if we consider 60% chance of success, getting it right 14 times in a row is a rare 1 in 1276 occurrence. So, it will probably take nearly 1000 years until a similar winning streak for the lunar green and red periods can be seen again.
A new lunar red period is now starting and we keep waiting for the first lunar cycle miss of the year. When it comes it will give us an important read on the market, as it will probably indicate the direction of the next major trending move in the markets and a departure from the mostly sideways trading we have seen since the beginning of 2015.
Let’s have a look at the S&P 500 (click image to enlarge it):
After a false breakout to the downside the S&P is now climbing strongly. All my indicators are pointing up, but the Earl and MoM indicators are getting quite high already. The Earl2 has much more room to rise, so any pullbacks could be short lived. The June highs and the 2150 level are first overhead resistance for the S&P, and that’s where this rally could stop to take some breath.
But I wouldn’t be surprised if this becomes the period in which the moon blinks. Investors have been cautious for quite a while, and if the S&P pushes above 2150 then more money will come pouring in. Many traders are realizing that bonds are going to be rubbish in a rising rate environment, making selected stocks look more attractive as long as the economy keeps doing OK. If this comes to pass then the S&P can get to 2300, with the Dow pushing towards the magical 20k level in August.