November 16th, 2009

Lunar Phases and the Stock Market

Let me start out by admitting my reluctance in submitting what you’re about to read because those naysayers, those doubters, those who consider “technical analysis” to be almost on a par with tarot cards and astrology, they all will use this piece as further evidence or proof for their disparagement. They will use what follows to undermine whatever credibility and currency I may have gained through 400+ postings in this blog over the past 4 years.

For the rest of you, however, those of you who are willing to expand your mind and are a bit more open-minded about looking for a wider than typical range of indicators and statistics to guide your investment decisions I offer the following interesting curiosity (click on image to enlarge):

Early Christmas greetings, you ask? No, actually this is a chart of the S&P 500 Index since May 28 to current. More importantly, it is the S&P 500 Index through the past 6 full lunar cycles. Each read bar represents the trading days during which the moon was waxing (growing from new to full) and the green bars cover the trading days during which the moon was waning (shrinking from full to a mere sliver).

Hold on, don’t hit the “close window” icon just yet; let me explain. On inspection you’ll see that there’s been an interesting correlation over the period. The market finished higher than where it started in 5 of 6 green periods and finished lower than where it began in 4 out of 6 red periods. Assuming that waxing periods (growing to full) are coincidental with market declines while waning periods (shrinking to new) are coincide with market increases, then market has been in sync with the lunar cycle 75% (9 out of 12) of the time for the past 6 months. I’ll take those odds any day, that’s enough for me.

I didn’t discover or invent this relationship but it is something that I’ve been thinking about and research for over three years, ever since a NYTimes article by Mark Hulbert entitled “Fly Me to the Moon, and Let Me Profit on My Stocks” in which he quoted the findings of a number of academic papers. O.K., I was skeptical myself so rather than accept others’ conclusions at face value I replicated the studies and found that that intervals between new and full moon were more reliable than the interval of “7 days before and after a new moon” that the academicians used to “predict” these market ripples.

At this point, skeptics usually interject that going backwards proves nothing since almost anyone can support almost any hypothesis if they structure their data correctly. So I started tracking my model through each succeeding moon cycle. Honestly, sometimes it worked better than other times. But even through the last market Crash, I still mental noted that the moon cycle coincided with the market’s swings more often than not.

The market has risen around 25% since June so the lunar cycle clearly don’t pinpoint major market turns. What they might do, though, is show you what you might want to expect over the very near term.

Where are we now? Tonight will be a new moon and, according to the Lunar Cycle advocates (as represented the chart above), we’re embarking on a cautionary 15 days. We’re having a very good day today (market is at 1111, up 1.67% as I write this) and the market is approaching the 1125 target of my “road map”. What will the coincidence of this road map destination and the Lunar Cycle new moon bring? Can’t wait to find out.

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  • Anonymous

    Guru, Do you own any REITs still? thx!!

  • Joseph Meth

    A little over 5% of portfolio is currently still in REITs (including the REIT ETFs). The yields are still too good to pass up and the stock haven't performed badly on a relative basis.

  • Minnesotalee

    I didn't realize Joe you were the Guru. I totally respect your thoughts and implement your strategy as the best alternative to mine. I find, however, that the timing has a little lag in it. But I use it as a coincident indicator and love it as support for my decisions. Maintain the outstanding work that you do and thanks for going public. I am interested in your call above my 1295.

  • Anonymous

    A top-ranked analyst on TV this morning was saying the same thing about the lunar cycles(got laughed at by interviewer-we'll soon see who laughs last)Hope that makes u feel less lonely 🙂

  • Joseph Meth

    Thanks you Minnesotalee for the kind words and let's march to 1295, or 1350 if not more, together.

  • Anonymous

    see the third red bar (market up) in your chart..I feel the market will continue going up from macd & rsi point of view..

  • Joseph Meth

    I love playing games like this with all of you; it takes the boredom of waiting for the market to make up its mind just little a bit more interesting. Let's see who gets the correct answer.

  • Minnesotalee

    Watch out for 4100 on the TRANS index. We are very close coming out of a lot of accumulation. Once this is attained it would support the DJ30 and SP500 to move to an elevated level from here. I'm not a DOW theorist but the charts' patterns all give the same signal. It's all about the technicals and you can't go against this momentum. Use all hedge $$$ in buying calls and selling puts on the $SPX. $$$ to be made from here and well into January 2010!!!

  • Minnesotalee

    The tides will overwhelm the BEARS!!!

  • Anonymous

    Good prediction..Just like August, September & October, SPX is going down again before heading up. where is the target? 50 MA??

  • Joseph Meth

    Unfortunately, this time I think the market is aiming to join up with the 200- and 300-day MA's at around 950 sometime in March.

    It won't be a straight line and there will be some selling-opportunity rallies but I think we may have seen the high (1113), or very close to it(1125), for this year.

  • Minnesotalee

    SP500 1295 by EOY and sticking to it. No full moons needed! But a lot of BULL!!!