September 8th, 2010

A Lunar Cycle Strategy

Alright, Lunies, your anticipation is about to be satisfied. Here are the stats for the Lunar Cycle phase completed today (click on table to enlarge):

The moon keeps racking up a good score. Both halves of this month’s cycle turned out to work and by a wide margin. During the Waxing to Full phase, the moon cooperated by taking a whopping 6.17% beating; during the Waning to New phase which just ended, the market climbed 4.47%.

Look at the Index a year ago …. about the same as where it is today. If you all you had done for the last 14 months was buy SSO (the double-long S&P etf) during each Waning phases and SDS (the double-short S&P etf) during each of the Waxing phases since June 22, 2009 (the actual beginning of this experiment), you could have wracked up about a 100% profit ((35.11+12.39) x 2).

The batting average for the past 12 months (24 hits) is still 17 out of 24 correct, or 70.8%. Since the start of of the experiment, correct hits are 21 out of 30, or 70.0%.

Even though the average change each period is small (less than 2%), if you were able to buy options at good prices instead on these securities your profits might have been even better. Since there’s now a reliable track record, I decided to play the game and bought some short-term, in the money call options on SDS as a hedge against my portfolio for the coming 15 days through the next Waxing period.

Just my luck, the market will decide to not cooperate and decide instead to show me who’s boss by busting through the neckline of that inverted head-and-shoulder formation. I can accept that kind of kick in the pants any day.

August 30th, 2010

Navigating the Hazards

Because of popular demand …. and a fortuitous turn in the market on Friday …. I’m updating the stats on the Lunar Cycle/Stock Market phenomena. The last phase, which was waxing to full that ended on August 24, last Tuesday, saw the market decline a higher than average 6.17%. That brings the Moon’s batting average to 70.8% on a rolling 12-mos. basis and 76.9% cumulatively since this race began over a year ago.

The next phase ends on Wednesday, September 8. Due to the Labor Day holiday, there will only be 10 trading days during this phase. The number of trading days within each phase varies from 9-12 depending on holidays and weekends; I expect to include those stats on the next publication of this scorecard.

This is a difficult market to navigate and we need all the help we can get. If necessary, I might even make use of the moon and stars if it helps prevent running aground or ramming into rocks and shoals.

August 17th, 2010

Lunar Cycle Batting Average Dropped to 71.4%

You may ask why I waste my time and yours keeping track of the Lunar Cycle stats when it’s probably nothing more than superstition. The only reason I can give is that with all the confusion out there about the direction the market most likely will exit this 11-month, excruciatingly long horizontal trading range (Is it a correction or a top? Only the future knows), why not latch on to something that depends not on opinion, experience or intuition. Why not hand off the question for an answer from an objective, impersonal, extraterrestrial arbiter – the Moon.

For those new to the theory [as I understand it since there can be various interpretations], the market is supposed to increase when it is waning (i.e., getting smaller) from Full to New. The market is supposed to retreat when the moon is waxing (i.e., getting larger) from New to Full. For those still be interested, here is an update of the Lunar Cycle stats. Last month was a split decision since the first half of the cycle failed (the market went up a nice 3.44% when it should have declined but the second half followed true to form with an slight increase):

That drops the batting average back down to 71.4% from 73.1% at the beginning of the cycle. With the difficulty the market seems to be having making any headway, then the next phase which ends with next Tuesday’s close (August 24), the batting average is likely to start moving back up.

Like any ballplayer knows, it gets harder and harder and takes more and more consistent hitting to make any headway in changing the stats. There’s just gets to be too much water under the dam to make much difference. [I see that in the gas mileage reading spit out by my car’s computer if I don’t periodically reset everything back to zero; the more I drive the longer it just continues reading 22.6 mpg.] Perhaps I’m going to have to reset these lunar stats and start tracking them on a rolling 12-month basis.

We only have to suffer through this difficult patch for another 5 trading days and the moon should again favor the Bull’s as a very difficult summer winds down to Labor Day. But then again, it will also the beginning of September, the month that’s supposed to be the worst of them all. We just can’t seem to catch a break with all this calendar seasonality and lunar stuff.

July 10th, 2010

Lunar Cycle Batting Average now up to 73.1%

I know you’re all sitting on the edge of your seats waiting for the results so here’s the scoop. The Lunar cycle held for through one more phase, just by a hair. As the post below indicates, the S&P 500 Index needed to close above 1076.76 yesterday, up for the just ended Waning phase to a New Moon and it did, closing at 1077.95:

That brings the average to 19 out of 26 in sync phases, or a 73.1% average. That’s a pretty good average in any sport, including betting on the stock market.

The next Full Moon will be July 26. It won’t be a difficult challenge to continue adding to the average. My guess, though, is that we’re due for a nice, juicy decline at or near the top end of the range. I’m looking for a decline of 5-6%, to around 1026.00 on July 26.

Pure speculation but, hey, you come up with a better one.

July 8th, 2010

Moon’s Batting Average up to 72%

Now that we’re getting close to the New Moon and with toady’s close at 1070, perhaps we should check in on the Lunar Phase Scorecard. I’ve got to say that, with one day remaining in this phase, it’s going to close in trying to hold on to the record. All it’s going to take is a close above 1076.76, less than one percentage point, or 0.6% exactly, for the record to remain intact:

As of last Friday, I had little confidence that the market would stage this strong a move up, close enough for the Index to possibly show an increase during this phase. But, amazingly, it has.

As I see it, nothing is really that different. We’re essentially back to where we were at the end of June. So don’t listen to all the talk about “the bottom”, the “recovery beginning”, “optimistic earnings season” and an uptick in the 2-year Treasury yields. It’s what comes after that I’m focusing on.

I used this run up as an opportunity to lighten up further and to add to some market index shorts. Sorry, all, but I’m hoping for no more than a 0.5% increase tomorrow and then, with some disappointing earnings reports, for significant declines over the remainder of the summer. I’m playing it like there’s some more left on the downside. That’s what the MTI still says and it could be wrong but I’m trying to remain discipline so that’s how I’m playing it.

June 17th, 2010

Lunar Cycle Batting Average Is 70.8%

I’m really surprised at how receptive many of the readers here are to the notion that the moon might actually impact the market in ways not yet understood or explained.

I’ve been tracking lunar cycles against the S&P 500 for nearly a year and conclude that while it’s not foolproof, it does seem to improve performance should you decide to follow the theory.

There have been 12 full cycles consisting of 12 waning to New moons and 12 waxing to Full moons. Of the 24 phases, 21 were in sync and 7 that were not, or a respectable 70.8% batting average. A graphical representation of the results follows. The red bars are those that were out of sync (as usual, click on image to enlarge):

Even more interesting perhaps are the market’s percentage changes during the various phases. The market’s cumulative total percentage change of only when the moon was waxing to full was a decline of 9.65% during 7 correctly and 5 incorrectly synced phases. When the moon was waning to new, however, the market’s cumulative total percentage change was a whoping 31.39% gain; only 2 of the 12 phases were out of sync. The complete statistics follow:

Are these completely unbiased results? Probably not since the market was in a upward trend during most of the period. And more that one year’s worth of data would add credibility to the study.

What does the theory say for the next phase ending Friday’s close on June 25 (the next full moon is on Saturday)? We should expect to see the S&P fall back below the 200-dma, back to about 1080 or more (1% or more lower). Watching lunar phases is like betting on the total score of the World Series without really knowing or caring which team actually wins.

April 29th, 2010

Lunar Phases: Redux 3

A brief follow-up to the moon-bugs out there. One more notch in your belt. The lunar cycle theory was true to form once again for the phase that ended with last nights full moon. Here’s the scorecard:

Many of you are probably yawning right now and saying to yourselves “Please, not again about the lunar cycle!” The more astute among you out there will find a light bulb turning on above their heads and will be shouting “Eureka!”.

We’ve complete eleven complete cycles since I started posting these statistics providing some startling observations. The most important is that the waning to new moon periods produced a sum total return of 30.79 while the sum total return of the waxing to full moon periods was a loss of 5.42%.

You can use this “reality” in any way you might want but here are a few:

  1. Use the lunar cycle to temper your expectations. If we’re in a waxing to full moon period, expect the market to wind up lower than when it started; if it winds up being higher that count that as a windfall (this is basically the most I expect from the lunar phase theory).
  2. Time trading decisions according to the lunar cycle since your might at least get a jump start towards your goal. If you’re thinking of selling stock, do so during the waxing to new period because the there’s a high probability the market will trend lower over the next cycle and, vice-versa, if you you want to buy, do so during the waning to full period since stocks have a high probability of being higher in the next phase (sorry, I just go this far).
  3. Finally, dump all your stocks, switch to trading the SPY only (or its souped up Ultra or 2x cousins) and buy and sell them at the beginning and end of each phase. (mechanistic but, who knows, it might just work and it eliminates the need for stock selection?)

Where are we now? If it follows suit one more time then the S&P 500 should be higher than 1191 on May 14. How much, I can’t say but if you throw out the two negative results (especially the one for June 22, 2009), then the average of 3.97% for each of the ten remaining months produces a close on May 14 of somewhere between 1230-1240. O.K., everyone load up the trucks.

April 15th, 2010

Lunar Phases: Redux 2

I’ve been busy working on adding a new feature to the blog that I hope you’ll find of interest and value. Details coming soon. But I’ve also been busy relishing in the market’s advance over the past several weeks since hitting the correction low at the beginning of February. Wow, all I can say is wow!

But I did want to take time out to follow up on the curiosity of Lunar Phases and the Stock Market only because it was so uncanny ….. I can’t explain it, don’t want to believe it. On April 2 in “Lunar Phases: Redux, I presented the following table and wrote:

“With a full moon last week, the next couple of weeks to April 14 should, statistically, result in a higher market (to about 1210 at the average gain with an upside possibility of 1245). If the market isn’t bewildering enough, this makes it just a bit more exciting.”

And where did the market close yesterday? At 1210.65 ….. right on the button:

That makes 15 out of the last 22 cycles being correct, or 68%. I’ll take those odds to Las Vegas. The next cycle, the moon growing to Full, will end on Wednesday, April 28. For selfish reasons I hope this phenomena doesn’t continue so the bull market just keeps rolling on.

With those hopes in mind, I took an alternative view of the data: relative changes instead of directional changes. Specifically, the question is “how often has the magnitude of a market’s change during one phase been correct when compared to the phases immediately before and after?”

In other words, the changes of weeks 2/16, 3/15 and 3/30 were 2.70%, 4.17% and 1.98% were correct relatively but not directionally (i.e., the change during the waning to new phase ending on 3/15 should have been greater than the changes in the phases preceding and following). On this basis, the lunar cycle phenomena was predictive 15 out of 20 phases, or an even higher 75% of the time.

With that in mind, where can we expect the S&P Index to close on April 28? It could be anywhere between 1203 (down the average -.06%) and 1228 (up half the growth in the just completed phase).

Place your bets everyone.

April 2nd, 2010

Lunar Phases: Redux

Yes, it’s that time again, time to again check into Lunar Cycles to see if they can give any indication as to what the near term might offer.

[Every time I do this I shudder because it just feeds into the view that technical analysis is about as worthwhile as astrology. So consider this more as an objective exercise than crystal ball fortune telling.]

Here’s the track record since about this time last year. You make your own decision:

If this were the racetrack or Las Vegas then I’d take these odds. The statistics begin May 26, 2009 (S&P 500 at 910.33) and end last Tuesday, March 30, the last Full Moon (S&P 500 at 1173.27) during which time the market gained 28.8%. The table above indicates that nearly all the gain occurred during the period between Full waning to New Moon. If you had owned the S&P Index (SPY) after a Full Moon and sold it after a New Moon then you’d wind up with a 27.60% gain (ignoring compounding).

True, the market gained when the moon was waxing to Full but more than half 11 cycles it declined. In 8 of 10 times the moon was waning to New the market gained. With a full moon last week, the next couple of weeks to April 14 should, statistically, result in a higher market (to about 1210 at the average gain with an upside possibility of 1245).

If the market isn’t bewildering enough, this makes it just a bit more exciting.

January 29th, 2010

Mid-term Elections in 2010 and the Stock Market

I have to admit, it’s kind of eerie. I wrote “The Importance of S&P 1150 Can’t be Overstated” on January 19 and, since then, the market has dropped 5.71% in just seven trading days. Furthermore, if the market declines tomorrow, another domino in the line (the 100-day moving average) will fall.

Some relief may be on the way, however. With some trepidation, I remind those who believe in the lunar cycle theory as it relates to the stock market that this “bearish” phase ends this weekend (on January 31) and a more favorable phase and lasting until Monday, February 15, starts on Monday (as outlined on January 12). That doesn’t necessarily mean that the recent decline will be erased and the bull market will continue. In all likelihood it might only mean that the decline might pause giving you an opportunity, if you missed out on it, to “sell into the rally”.

The big question on everybody’s mind is “If this is a correction, how deep will it be and how long might it last?” Something that came across my screen (in days gone by, didn’t we use to say “came across my desk”?) that I found relevant and important to share with you. It’s something called the Election Cycle Power Zone from a firm called Alpha Investment Management. The focus of Alpha’s research seems to be the Presidential cycle and they’ve come up with some interesting statistics:

“The Power Zone is 15-months long, beginning 30 days before the mid-term elections. This 5-quarter period has not been down since 1931 (Dow Industrials’ Total Return)…..The average return has been 25.5% plus dividends. The average daily return since 1931 has been 7.7 times greater than the average daily gain for all other trading days. A $1,000 investment in the Dow only during the Power Zone (31% of the time) appreciated to $68,200 as of the end of 2009. A $1,000 investment in the Dow during all other trading days (69% of the time) grew to just $1,800 since 1931…..If there is any time to be invested in the stock market, it is this.”

I usually focus on what the charts say without paying too much attention to statistical stuff like this (nor the lunar cycle, he says in jest) but there may be something to the impact of politics on the market this year. I contend that there hasn’t been a mid-term election in quite some time with as significant a financial impact as the one this coming November.

As the campaign truly heats up after Labor Day, the issues and sides will become clearer. It will become even more evident that one party rule (Democratic) may end with the market breathing a sigh of relief. For the bull market to resume, there won’t be a better time than when it becomes clear that

  • Congress can make a new stab at economic stimulus, one that’s more favorable to business (i.e., shifting the focus from leading through punitive taxes to investment and business tax reductions and incentives),
  • Congress can begin a real attempt at reducing the deficit through true spending cuts rather than tax increases and
  • Obama will moderate his vision of change, out of necessity, to be more evolutionary than revolutionary.

Where will the market be by then? How much further will the correction go? I wrote about precedents quite a while ago (September 3o) when the market wasn’t far from where it closed today in “Two Market Consolidation Models: 2004 and 1933-35“. [By the way, 2004 was the final year of G.W. Bush’s first term and 1933-35 spanned FDR’s the first two years in office.] Unfortunately, we won’t know until we get closer and are in it.