A perfect lunar phase turn in the markets last week – up into a peak at Thursday’s new moon and then since downward. The downward pressure of forecast geomagnetism and into the full moon should persist until the end of next week. I expect to be sat on my hands until then, awaiting the FOMC output and monitoring developments in leading indicators, economic surprises, Euro debt and earnings. My thinking is that stocks will go onto to make a kind of second low in these next 2 weeks, higher than the June low and with a positive Nymo divergence. Meanwhile, I expect leading indicators will start to show signs of basing and ticking up, brought about by a natural upswing in growth, the drop in commodity prices in H1 2012 and the fresh round of global easing and stimulus. That combination would set us up to go make new pro-risk highs as H2 2012 progresses. So, whilst awaiting developments, back to the moon.
I trade the medium term, generally speaking, but use the lunar phase extremes to time my buys and sells. Thursday’s new moon reversal meant my sells captured the short term peak. Lunar phasing doesn’t always work out that well, but in my in-depth guide, Trading The Sun, I refer to 3 papers and my own chart demonstrating the compelling relationship that means overall lunar phases provides an enduring edge in the markets. I since liaised with Stifel Nicholaus and they did their own lunar research and shared with me. So here are their visuals showing the relationship between the SP500 and lunar phasing from 2007 to 2011, with new moons in green and full moons in red.
Source: Stifel Nicholaus