The Nasdaq is falling back a bit after climbing above the psychological 5000 mark. Readers of this blog were probably not surprised by that move, as we have been calling for it weeks ago. We will be ending the lunar red period today, and then we will see if the market can go even higher in the next lunar green period. It will be a very unusual eclipse green period. More on that later in this post, let’s first have a look at the Nasdaq chart (click image to enlarge it):
The Nasdaq has gone mostly sideways in recent weeks with a few spikes reaching for 5000. This could be setting us up for a further climb towards 5200 in the coming weeks. Technically the Earl indicator (blue line) is now in bottom territory getting ready to turn back up, while the slower Earl2 (orange line) is still climbing but starting to flatten out a bit. This allows for another push higher in the upcoming green period.
A failure to get another rally going would not bode well and signal that we are starting a broader market correction. A drop to 4800 support level would still be OK, but any deeper drop would spell bigger trouble. We just watch and respond. The bull market scenario remains intact until it doesn’t. The most common mistake in investing is to call for a top too early, as countless analysts have experienced once again in the recent years.
As I mentioned in the introduction, we are heading into an eclipse green period. For readers who are new to this blog, check out my more extensive article about Eclipses and the Stock Market. Basically the lunar green periods that contain a solar eclipse have a history of being very positive for stocks. That’s why a surge to new records is definitely possible. But it is not guaranteed.
The upcoming solar eclipse of March 20th will fall within a day of the spring equinox, and that is very rare. The last time a solar eclipse fell more closely to a spring equinox was in the year 1681. I did a little study on equinox eclipses (considering both the spring and autumn equinox) and here is what I found.
In the last century we had only two of them: September 1968 and September 1987. In both cases the equinox eclipse came within months of an important peak, just before a major bear market started. Here is the S&P monthly chart showing the 1968 equinox eclipse with a red diamond(click image to enlarge it):
It marked the end of a 20 year bull market, and the S&P declined 35% in the next few years. Market kept going sideways for more than 10 years until the great bull market of the 1980s got underway.
The next equinox eclipse was September 1987 and came just before the famous crash (click image to enlarge it):
That were the only two equinox eclipses in the 20th century.
We got another equinox eclipse in September 2006. In this case it was once again near the end of a multi-year bull run. But it came a year before the eventual top, so the timing was not as good. A serious bear market followed, as most of us remember all too well. And now, March 20th will give us the next one. (click image to enlarge it):
Once again the market has been climbing for years. Will the equinox eclipse of March 2015 mark another major top? Time will tell, but the technical setup is now very similar to the one we had in 2007. We see a bearish divergence in the Earl (blue line) and the slower Earl2 (orange line) has just turned down. Once the up trend line that started in 2009 gets broken to the downside we are quite likely to see a serious drop.
As if that is not enough, later in 2015 we will also get the visit of Solar Saros 125, which has a history of producing financial panics going all the way back to the tulip mania in 1637. See my article: The Saros cycle and the stock market.
Warning: with only a few observed cases we better remember that the law of small numbers applies. So, these bear markets that came on the heels of equinox eclipses can be the result of coincidence. I don’t give any guarantee that it will “work” again. Don’t bet the bank on it. It is just a hypothesis I am passing on.
Equinox eclipses tend to come in clusters (for reasons that exceed the scope of this article). We have seven more coming up in the 21st century: 2025, 2033, 2034, 2052, 2053, 2071, 2072. So, there will be more chances to see if this tendency keeps up.