October 31st, 2012

Lunar Cycles and the Market: An Annual Report

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.

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November 7th, 2011

Lunar Cycle Once Again.

It’s been a while for those who hang on to the hope of finding a quick and easy way of unlocking the future of the market’s volatile movement so here is the latest update of my Lunar Tracking Table (click on image to enlarge):

When I told a friend about this strange phenomena of the moon’s phases being in close synchronicity (meaning: “an apparently meaningful coincidence in time of two or more similar or identical events that are causally unrelated”) with one another he replied “it’s too small a sample. You have see it happening year over year for many, many years.” Well, in the end we’re all dead. We have to make some judgment calls for the here and now.

I added another column to the analysis: rolling twelve month accuracy count. Since June 2010, the Waning Lunar Phases has correctly correlated with the market’s direction in 9-10 out twelve times. That’s understandable because the market over the period has trended higher. So, the accuracy during the 12-mos. rolling Waxing Phases has been correct half the times.

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?

By the way, for all those interested, the Waxing bearish phase will end on Thursday, so be patient. If synchronicity continues, we should have clear sailing to Thanksgiving.

May 17th, 2011

Lunar Cycle Tweaked on Stocktwits

My May 5 blog post entitled “Time-Segmented Market Analysis with Lunar Phases” was tweaked on StockTwits so I’m going to have to answer here even though I fear giving the Lunar Cycle Theory more credence than it truly deserves. @fstrtrdr had this to say the next day:

“Lunar phases? Add in the Werewolf and vampire indicators and watch Loonie Tunes for trade ideas?”

Now fstrtrdr’s bio says “My trading records for personal reference only. Don’t follow me since I am almost always trading options against a spread or hedge that would not make a single leg of the trade a good idea.” It’s clear why he/she would have no interest in something that on average runs 20 days. But perhaps the rest of you may.

The intention of that May 5 piece was to put a time perspective on the market’s current volatility, a framework so to speak for market expectations. One common way of doing that is to look at the market’s movement in time-segmented intervals and the Lunar Cycle is, although arbitrary, one way. Basing volatility expectations for the next 20 days based on the volatility over the past year, granted, is just one approach. So on May 5, I wrote:

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.

Here we are, April 18, and the intra-day low was 1318.51 with a close of 1328.98. So shoot me, I missed the mark by 0.23% as far as the low is concerned (that’s %, not percentage points!) but the Market lightly kissed the 50-dma and then bounced.

What might we expect for the next phase? I’m not going to risk my record so you make your own guess. Here is the data:

To help you, here’s what the close on June 1 with a range of changes during the next phase:

Good luck guessing! [Psst! I'm going for 1368.85]

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.

March 21st, 2011

The Moon Makes Fast Money

At the beginning of March, a reader alerted me to the following which was written by John Melloy, the Executive Producer of CNBC’s Fast Money show that precedes Cramer. Excerpts from the piece follow:

What happens when a bull market rising meets a bad moon rising? We’ll find out this month.

On March 19th, a full moon will occur at around the same time it reaches it’s closest point to earth in recent history. Rare planetary events such as this are often associated with above normal tides, an increase in volcanic activity and more frequent earthquakes, according to astronomers and yes…even some market analysts……

Before dismissing this as voodoo outright, keep in mind that Montgomery [Paul Macrae Montgomery, publisher of the interesting and thorough Universal Economics newsletter], a successful market analyst for 40 years, only watches the lunar cycle as a very small piece of a more sophisticated overall market evaluation in his newsletter…..

Like many strategists Montgomery has been warning clients that this unusually long period of volatility could mean a stock market correction is overdue. He just differs from the rest because he is citing an astronomical anomaly as just one more — albeit small – reason to get cautious.

……one should still note that this won’t be just any ordinary full moon. This month it will occur when the distance between the moon and the earth will narrow to just 356,580 kilometers…….

Such events “have passed before with nothing of consequence, but we would be wise to be prepared for something untoward happening,” said analyst and hedge fund manager Dennis Gartman……..

The market’s current selloff, which intensified on Tuesday after oil prices rose, began after the S&P 500 hit a high on February 18th, the same day of a full moon it jus so happens. It also was within 23 hours of the moon’s perigee for February, points out Montgomery.

That event “could have been enough to cause a minor top in stocks, and to affect the geophysical record as well,” wrote Montgomery on Monday. In that same note, he pointed out extreme insider selling as another reason to be cautious and get “flat” here.

Was the full moon on the same day of the market’s 2011 high a coincidence? Maybe. Just don’t be surprised to see more telescopes down on Wall Street.

We know the moon had nothing to do with the Japanese earthquake and related tsunami. What we don’t know is whether the approaching special full moon this past Saturday had anything to making the reaction worse (the market declined 3.18% during this lunar phase which ended with Saturday’s extra large full moon).

It’s easy for the media to take a common biweekly occurrence such as a full moon and turn it into something “newsworthy”. But I just haven’t heard or read anyone in media announcing the possibility of a respite in the market correction due to the moon entering a waning phase (the period preceding a new moon), one that has historically tended to be favorable to stock prices. Now let’s see what happens (click on image to enlarge).

January 20th, 2011

An Explanation for Today’s Slide Not Heard Elsewhere

I don’t know about you but I had a truly horrible day today. The jolt my portfolio took made it feel almost like having been rear-ended by a careless driver. I looked for explanations. Some commentators attributed today’s pullback to the poor housing numbers, others to the disappointing earnings reports from Goldman Sachs and Citibank, others point to the valuation of Apple in the wake of Steve Jobs absence and, finally, still others questions the valuation of those booming “cloud computing” stocks.

Yes, we should have been looking up in the sky …. not at the clouds but at the moon. Full moons are traditionally associated with weirdness (werewolves, vampires, etc.). What I didn’t hear mentioned as an explanation of today’s tech smashup was the fact that it’s a full moon tonight and the end of its Waxing Phase, usually a bearish period in the Lunar Cycle.

Had it gone much further along the lines of the NASDAQ, today’s decline would have almost carried the index back below 1270, back into negative territory for the phase. Today’s 1% decline nearly saved the day and the market would have had another 2%+ up phase.

The Lunar Cycle has been more reliable during the Waning phase with 16 up periods and only 3 down for a 84.2% batting average — as it should be. Let’s hope that there’s a least one more bullish Waning period left before the market gets the Waxing phase right on its way into a interim market correction.

January 6th, 2011

Lunar Cycle Update – Again

Thankfully, if you’re a bull, the moon just can’t get those Waxing phases with a 50% correct call as the market grew 2.44% when it should have been declining …. according to the theory. Since we’ve been lucky enough to be in a bull market, the Waning phase is holding its own with 10 out 12 hits (an 83.3% accuracy). Since I began tracking in July 2009, the lunar hit rate has been 68.4%. (click on image to enlarge):

Having a very positive view of the outlook for 2011 so I hope we won’t have an opportunity to test the Waxing phase during a declining market.

December 6th, 2010

Is it the Moon …. or Lucky "Rule of 7(0)"?

Another two phases of the moon’s cycle and this month it was a perfect score. In line with the theory, the Waxing phase between November 6 and November 21 resulted in a 2.78% decline; that was almost totally offset by a 2.77% increase in the Waning phase between November 21 and December 5 (if for whatever reason you may want to enlarge this, and I have no idea why you would, click on image):

Since we’re talking about inexplicable stock market phenomena (i.e., the lunar cycle), I thought I’d throw in a site called Rules of Thumb which lists 5055 rules of thumb in any of 155 categories. For example, there are 46 rules of thumb when it comes to animals, 94 rules of thumb in business and 65 in travel. Among 30 list in the “stocks” category were the following familiar ones:

  1. Cut your losses quickly. Let your profits run.
  2. Take your losses when your investment value has dropped by 12 to 15 percent.
  3. Stocks declining most during a down cycle will gain the most during the next up cycle.
  4. Never buy more of a stock when its price goes down. You only compound your losses.
  5. It’s tempting to sell out when a stock rises in price by 25 to 50 percent. But if you’re speculating on low-priced stock, look for bigger returns.
  6. Whatever the crowd does, do the opposite.
  7. Speculative investments, such as silver, should never exceed 10 percent of your investment portfolio.
  8. You’re trading too much if you turn over an average of more than one-third of your portfolio each year.
  9. The stock market rarely advances more than 10 or 12 days in a row without a minor setback. On a longer-term basis, it rarely rises more than six or seven weeks without a setback or “correction” that lasts two to four weeks.
  10. You can quickly calculate the number of years it will take to double your money by dividing the number 72 by your interest rate. For example, if your money is invested at 6 percent interest, it will take 72 divided by 6 or 12, years to double.
  11. Don’t move a substantial portion of your wealth into or out of the market at one time. Ease in, ease out.
  12. Don’t buy common stock with money you feel that you will need in less than four years.
  13. Don’t buy stock that is included in the Fortune 500 or Standard & Poor’s 500. The chances of such stocks being undervalued are virtually nil.
  14. Don’t buy stocks for a year after a presidential inauguration. For some reason, the market almost always goes down in that period.
  15. The amount of your portfolio that should be invested in stocks depends on your age. As you get older, less of your savings should be in the stock market. The conservative rule is to find the right percentage is to subtract your age from 100. A slightly more aggressive approach is to subtract your age from 120.

But it’s time for a new one: the “rule of 7(0)”. You never heard of it because I just named it; it refers to the percentage of instances in a large number of trading days that are bull (up) moves.

There have been 11,000 trading days since 1963 and the rule holds true with the market up around 70% and down 30% of the time across nearly any long sequence of those observations. For example, I tested the January rule of thumb (i.e., if the market closes up during the first week of January it will close up for the month of January; if the market closes up for the month of January it will close up for the year) and found that it holds true about 70% of the time over many years. Then there’s the “sell in May go away” rule and the mid-term election cycle, That holds true about 70% of the time also over a large number of years.

So here we are, gazing at the moon and find that since July, 2009 when I first started tracking the statistics, the market has conformed to the Lunar Cycle Theory 69.4% of the time (25 out of 36 times). Over the last 12 months, the hit rate has been 66.7%. So is it the moon or is it the Rule of 7? The bottom line is the odds are better being on the long side rather than being short, being an optimist rather than a pessimist.

November 17th, 2010

Lunar Cycle Update – Again

It is time, time again for a Lunar Phase update. The last one was on October 8, immediately before a whole list of key events like the mid-term election, major trendline and moving average cross overs … I don’t want to list them all but you can see them in here.

In the two phases (one waxing and waning) since then, the market went up both phases giving the Moon a 500 batting average since the waxing phase should have seen a decline but didn’t. Here’s the scorecard:

Although the market has been correcting for the past several trading sessions (as it should according to the Lunar Cycle theory), “control” should pass for two weeks, starting next Monday, to a Waning phase and end with a New Moon on December 5.

So if the economic turmoil in Europe, China attempting again to cool down their economy, strengthen $US and other new concerns has you been thinking about dumping stocks and moving back into cash for safety, then perhaps you might pause and take a deep breath.

It’s too early to give up on the Mid-Term Election Cycle, the Nov-April seasonal bullish cycle and all those other factors that lead to a bullish view of the market in 2011. I’m going to wait to see what happens next week.

October 8th, 2010

Lunar Cycle Update

I wrote the following on September 24, on the eve of the last Full Moon:

“This is one time I don’t mind being on the losing end of a score. Since the market moved nicely for the past couple of weeks as it barrels ahead to the 1150-1164 hurdle, the Moon’s batting average dropped to 66.7% over the previous 12 months and 67.7% since I started keeping track.

With the way market momentum seems to be expanding (at 1146, it’s excitingly close the hurdle this morning), I’d be disappointed if the next phase to October 7 doesn’t stick to script and end above yesterday’s close of 1124.83.”

And here we are, on the eve of a New Moon with the Index just shy of the upper-end and right in the middle of the target range at 1158.06.

Pretty amazing. The Moon’s batting average is hanging in at 66.7% for the past 12 months, slightly less than the 68.8% since the count started in July, 2009.

This next phase is probably going to be good for the average but bad for those of us who are looking for a break above those key trendlines. We have several conflicting forces working against and for us:

  1. there are 11 trading days until the next phase, one more than the usual
  2. the index is at a critical resistance level
  3. the market is digesting the excellent September run
  4. we’re facing the curse of Black Monday, Black Friday, Black you-name-it
  5. the election campaign is entering the home stretch and anything is possible
  6. “Sell-in-May-and-go-away” is winding down which could be either good or bad
  7. The Hindenburg Omen hasn’t crashed yet!
  8. The “Death Cross” is on the verge of being rescinded
  9. The inverse head-and-shoulders which we’re now enjoying the benefit of (in the same post as the Hindenburg Omen) is due for a “buyers’ remorse congestion” back to the neckline.

My guess is that if you want a safe side wager, go with a correction to around 1130 by 10/23 before we resume the march higher. That’s the way I’m betting (but I hope I lose because there’s much more money riding on the other side of that bet).