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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Setting up for an August peak
Posted by Danny on July 28, 2014
US stock markets have been fairly flat in July, neither breaking down nor breaking out to the upside. The current lunar green period will end Wednesday. So far it looks like a rather weak green period, but we have a few more days to go.
The upcoming red period will contain a supermoon. Over the last 60 years supermoon red periods have on average been rather positive for stocks, unlike normal red periods. See my article: https://lunatictrader.wordpress.com/2013/06/24/trading-the-super-moon/.
Does that mean the market will climb even higher? We cannot rule it out. Sometimes the market does go down in supermoon periods, but more often it goes up. Note: in the media you may read that we are having three supermoons in a row (July – September). Technically that’s true, but for my research I consider the one that comes closest to Earth and for this year that is the August supermoon.
Let’s have a look at the Nasdaq to see what could be in store (click for larger image):
Nasdaq is clearly hesitating near overhead resistance lines. Even though it feels like a bull market, we can see that this could be an ongoing sideways pattern that started last December, trading above and below 4200 alternatingly. If so, then a drop back to 3950 could come next.
Technically, my slower Earl2 indicator continues to point down, but the shorter term Earl is more positive and also MoM has turned back up after touching the zero line. This means we could first reach the 4530 level that my price target algorithm has been pointing out since the middle of March.
Taking a closer look for further clues (click for larger image):
Prices have been contained within a nice channel that started in late April. With both Earl and MoM in rather neutral territory and the market in indecisive mode, we will continue to grind sideways inside the pink triangle until there is a clear breakout, up or down. That could give us a 4530 high print, as that’s where the overhead resistance (grey dashed line) lies for the coming weeks.
On the downside I watch the July lows ~4350. A break below that level would tell many traders that the trend has turned down, and would probably trigger significant selling with the 3900-4000 area as the first downside target.
Good luck and stay tuned,
Danny
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Posted in Financial Astrology, Market Commentary | Tagged: lunar cycles, Nasdaq, Supermoon | Leave a Comment »