May 5th, 2011

Time-Segmented Market Analysis with Lunar Phases

I wrote in the Weekly Recap Report mailed to subscribers on Sunday:

“You may be wondering why so many Wall Street analysts say the market’s next target is 1430. Those analysts, as do I, look back across to the other side of the canyon of the Financial Crisis Crash and see the market ricochet off that level several times in 2007-08 early on its way to the bottom. That 1430 zone was critical, first as a level of support and then as a level of resistance (click on images to enlarge):

It may look like the market was bouncing around 1430 for twelve months but it had actually already begun trending downwards. While everyone today talks about 1430 as a ceiling or resistance level, I’m hoping it again, at its worse, will become the midpoint of another trading range on its way to an upper boundary somewhere around the historic all time high, my target since last November with the start of the “mid-term election year” cycle.”

That was last weekend, before this week’s correction began. One subscriber, therefore, now asks “Do you have any opinions you would share if the market closes below your 1345 mark?” Fair question.

I decided some time back that I restrict Lunar Cycles tracking updates to my Facebook page but that data may actually be helpful used in another way: putting the market’s current weakness into some perspective and providing a framework for expectations. Lunar phases offer a way to look at the market’s past movement in terms of time-segmented, albeit somewhat arbitrary, chunks (click on image to enlarge):

Since July 2009, shortly after the recovery bull market began, there have been 46 phases roughly equal to 2-week periods. During that span of time, those periods produced the following results:

Although the extreme outside range of change has been from +8.29 to -6.17% for these two week lunar phase periods, the averages have been much narrower: 2.87% for when the market finished up and 2.61% when the market finished down. For the current two week period that will end on May 17, an average move down would carry the market to 1321.21, almost precisely to the level of the 50-day moving average (currently at 1318.18 as of last night’s close). Based on this analysis, my guess (and blatant hope) is that the market will again approach the 50-day moving average as a support and, like it did on April 18, it will again pass the test.

The media thrives on immediacy by focusing mostly on today’s events and headlines; what they may have said or focused on last week is of little interest or forgotten. The fact that last week “talking heads” trumpeted the cross above 1345 and that several Wall Street gurus were touting the economy and the stock market is no longer “news”. The news media provide no context, and offer little perspective; continuity for them just isn’t that interesting.

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