Posted by Danny on November 26, 2012
Stock markets rebounded nicely last week and have already recovered a good chunk of their recent losses.
This means the market is now running completely counter to our normal lunar cycles, something that happens from time to time. Some people have been asking me about this kind of “phase inversions”, and whether I expect this to continue. More about these phase inversions at the end of this post.
Let’s first have a look at the Nasdaq chart (click for larger image):
The market appears to have entered a sideways pattern, and we may now continue to hover between 2800 and 3200 for a while (probably months…). You can see that my Earl indicator has broken out to the upside, while the slower Earl2 is showing its first signs of bottoming. This means that you can start thinking about buying the dips, with an eye on riding the market back up to 3200. I would keep a stop-loss somewhere below 2800.
There is no need to hurry, as it is quite possible that the recent lows will be retested in December.
As chart of the week I want to revisit Crude Oil, which we covered last August:
Back then we recommended to sell Oil on any drop below $94, with a downside target of $85. As you can see in the current chart, that has panned out almost perfectly (click for larger image):
Notice how the Earl2 has quietly turned up again, which means that Oil can now be bought around $87, with an upside target of ~$95. I would keep a stop-loss around $84. That’s risking $3 with the potential of gaining $8, which is not bad as far as risk-reward ratios go.
As to the question of phase inversions. Phase inversion is when the normal cycle appears to flip upside down. In our case that means stock markets going down during the normally positive lunar Green period, and then go back up during the Red period. That’s what we see right now.
When do these inversions happen? Why do they happen? Anybody who can find a good answer to these questions would become very rich very quickly.
One of the things that seems to trigger them is solar activity. Sudden spikes in solar activity (as evidenced by high sunspot count and/or high solar flux) can create a more nervous mood, regardless of where we are in the lunar cycles.
That’s what we saw two weeks ago, when the sunspot count suddenly jumped to near 200 (where in recent months the average sunspot count had been only around 60) and stayed elevated all week long while stocks declined. Last week the sunspot count came back down (now it is at 64), and the stocks recovered.
One thing to remember is that the solar activity has an approximate 27 day cycle (called the Barthel rotation), which means that the same side of the sun gets turned to us again after 27 days. A period of high sunspots count thus tends to get a repeat after 27 days. Watch next December 7 – 16 for a possible period of high solar activity again. Phase inversions that get triggered this way will typically last as long as that sector of the Sun remains very active.
You can monitor the daily solar activity in the small utility on the right side in this blog. You only need to watch the first line. “SFI” shows the solar flux index, while “SN” gives you the current sunspot count.
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Good luck, Danny