Wednesday, August 3, 2011

Stock Making Money

If the moon is looking especially full lately, it could be because the celestial body is pointing toward heavenly things for the stock market.


At least that’s the opinion of one market pro who for 40 years has been following the moon and its various progressions as one method to chart the future for investors.


“For months the best indicator by far has been moon phases,” says Paul Macrae Montgomery, publisher of the Universal Economics newsletter and a leading authority in the small but apparently profitable field of stock market/moon cycles research. He uses lunar cycles as one of a slew of indicators to trigger near-term buy and sell signals.


The reason why the stock market has had such a strong lunar connection is that emotions are running high now for investors, who have been rocked over the past several months by a series of domestic and geopolitical shocks.


In such cases, Montgomery argues, the moon can be a very strong predictor for how investors will behave and thus how they will move the markets.


“Those non-skeptics who readily embrace lunar cycles must realize that this phenomenon has been working so precisely lately only because there currently is an unprecedented amount of fear and uncertainty with respect to the world’s investment markets,” he wrote recently in his newsletter.


“Under these conditions,” he continued, “the cerebral cortex cedes much behavioral control to the primitive basal ganglia—wherein neural voltages matter more than earnings and interest rates.”


The thinking, according to research published over the past several years at the University of Michigan and State University of New York at Buffalo, is that the 15 days closest to the new moon produce higher results than the rest of the month.


The notion that the moon can influence moods is not new, but it is a somewhat novel approach to investing. According to a New York Times report several years ago, the strategy works about 60 percent of the time though it is primarily a short-term trading tool rather than a benefit for longer-term investors.


Indeed, Montgomery acknowledges that it has limitations, particularly regarding the stock market.


“Usually (lunar cycles) show up fairly regularly in the commodities markets. In the stock and bond markets, they’re best just ignored. They’re just noise,” he said in an interview. “Occasionally, when the markets get very commoditized and they’re whipping around and are very highly emotional…there’s a lot of fear and everybody remembers 2008. In these highly emotional, irrational times in the marketplace, non-rational indicators start to show up in the price structure.”


At this point, Montgomery said the market should have topped on July 1 as it was a “Cycle Day.” But he said the recent proximity to another Cycle Day and improving technical signs indicate that any “sell-off from this point will be short-term only, leaving the June lows intact, and making new recovery highs in the weeks to come.”


Montgomery offers no long-term view but says the short-term outlook, based on the moon and other variables, appears, well, full.


“Sometimes the markets are earnings-driven, sometimes they’re interest rate-driven, and sometimes they’re emotionally driven,” he said. “That’s rare, but that’s when these cycles tend to be more help than usual.”


This post originally appeared at CNBC.com.


After several dismal trading sessions, investors were able to get their minds off of frustrating debt woes, and celebrate a strong earnings lineup from a number of American bellwethers. Now that earnings season is underway, it will likely be the dominant market mover, while governments’ around the world, including our own, try to figure out a way to deal with their respective debt crises. In the US, our situation finally took a turn for the better during Tuesday trading, as President Obama embraced a bipartisan proposal to reign in the deficit and help avoid an early August default. Thanks to these easing tensions, the focus will likely continue to be on the slew of earnings reports that will arise, as some of the most popular blue chip firms get ready to announce their most recent fiscal quarter results [see also ETF Insider: A Most Unexpected Rally].


Yesterday, after the bell, technology giant Apple reported their earnings from Q3 2011. The company famous for bringing us household names like the iPod, iPhone, and most recently the iCloud, a new online storage system for music, is known for their innovation in the tech space. Last year, the company surpassed Microsoft in market capitalization as new products continued to propel them to the front lines of consumer discretionary spending. But the company has been in the limelight in 2011 for different reasons, as CEO Steve Jobs took another medical leave of absence early in the year, with many speculating whether or not he intended to return. COO Timothy Cook took the reins of the company, and has kept them on a steady track as they report their most recent quarter without Jobs behind the helm [see also Five ETFs To Look Forward To].


Analyst estimated the company would bring in EPS of $5.80 per share with revenues just under $25 billion. As is typical Apple fashion, the company blew estimates out of the water, hauling in an astonishing EPS of $7.79 and revenues of $28.5 billion. This big jump was largely due to Apple’s iPad sales which were up over 180% from a year ago, and the company also crushed its iPhone sales estimates as well. Though it did have lower than expected sales of Macs, many had already forecast this number to miss the mark as Apple readies its new Mac lineup. AAPL promptly jumped 7% in after-hours trading though the stock trended below the $400 level shortly thereafter [see also AAPL Weighting In QQQ To Be Slashed].


In light of yesterday’s after-hours earnings announcement, today’s ETF to watch will be the QQQ Trust (QQQQ). This ETF tracks the NASDAQ-100 Index which includes the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market. Apple ranks as the top holding of the fund, making up over 13% of the product as a whole. Thus far, this fund has gained 1.7% in 2011 while paying out a dividend of about 0.8%. Because Apple makes up such a vital portion of QQQ, its incredibly strong numbers from its most recent quarter will likely lead to a strong trading day for QQQ and the rest of this tech heavy fund.



[For more ETFs to watch sign up for our free ETF newsletter.]


Disclosure: Photo courtesy of Matt Yohe. No positions at time of writing.


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