October 31st, 2012
Hurricane Sandy was traumatic and something we haven’t really grasped the full implications of. The people in its path suffered personal tragedies. And in the midst of the news broadcasting on Tuesday was the almost overlooked fact that October 29 was a full moon. Breaking through my focus on the scenes of devastation in lower Manhattan, Long Island, Connecticut and the Jersey shore was the thought that I had written several times over the past three years about the implications of the Lunar Cycle on stock prices.
For those unfamiliar with the theory, proponents believe that the market tends to be bearish when the move is waxing to its full phase and more bullish when it is in its waning phase to a new phase. I’ve been tracking how accurate the theory might be in order to see whether there was any merit in using it to guide trading. Coincidentally, The last I reported on the statistics happened to have been Nov. 7, 2011, almost exactly a year ago. In that piece (if you click on the link you can see a table with the results for the twelve months ending 10/26/2011), I wrote:
“What has always intrigued me the most the cumulative changes during each of the two types of lunar phases. Since I started tracking these returns in 2009, if you had bought the SPY at the beginning of Waning Phase and sold at the end, your cumulative returns would have been 64.48%. I you had sold the SPY short at the beginning of each Waxing Phase and covered at the end, your cumulative returns would have been 27.99%. Combining the two would have nearly doubled your money in just over two years. Not bad for a theory that has yet to be statistically proven, wouldn’t you say?”
A year later, have the results changed much?
Nothing much except that strictly following the theory with a bimodal (on/off) investment in the S&P Index ETF would have produced a return of 12.88% for the prior twelve months and avoided a -1.26% loss for the waxing phases. The theory has delivered the expected results accurately in 58% of the 24 phases (12 waxing and 12 waning). The cumulative return for the waxing phases since July 2009 would haveincreased to 71.63% and the cumulative losses for the waning phases would have grown to -21.11%.
For reference, a buy-and-hold strategy for the period July 7, 2009 to last Friday’s close, the last trading day before the full moon would have produced a gain of 57.22%.
A friend scoffed at the theory claiming that the 60 phase results I presented to him was too small a sample. I’ve added 24 more phases and will continue to add more until I convince him …. and me ….. as to its validity.