Lunar Phases
Several studies found a connection between full and new moons and stock market performance. Generally, stocks tend to perform better in the days around the New Moon, while price weakness is more frequently seen in the days around Full Moon. It was also observed that major market crashes have a history of happening about 3 days before a New Moon, typically in September or October.
Based on research of stock market data since 1950, we have identified a “lunar green period”, when stocks tend to do better than average, and a “lunar red period”, when stocks generally underperform. Green periods start about 3 days after Full Moon, and red periods begin about 3 days after New Moon. The outperformance in green periods has been significant and persistent, as you can see in this chart (1950 – 2009):
The green line shows the return on investment for S&P 500 index during green periods only (staying in cash during red periods). $1000 would have grown into $21000, a 21-fold increase. Investing during red periods only would have seen $1000 grow into $2840. During green periods the average annualized gain has been 10.9%. During red periods the average annualized return was only 3.6%.
This basic strategy of being long during lunar green periods has continued to work well, as can be seen in the public live forward test we did on the blog from 2009-2020.
University research and further reading:
Lunar cycle effects in stock returns (I. Dichev and T. Janes, University of Michigan)
Autumn Panics, a Calendar Phenomenon (C. Carolan)
Are Investors Moonstruck? Lunar Phases and Stock Returns (K. Yuan, Lu Zheng, Q. Zhu)
The 54/56 year cycle, financial panics & Moon Sun cycles (David McMinn)
The Tunnel Thru the Air (William D. Gann)
McWhirter Theory Of Stock Market Forecasting (Louise McWirther)
Apogee-Perigee Cycle
(called Moon Distance Cycle in the LunaticTrader software)
The Moon’s path around the Earth is slightly elliptic. At its perigee (closest point) the Moon is about 10% closer to Earth than at its apogee (furthest point). The gravitational pull of the Moon varies, resulting in stronger tides when the Moon is at perigee.
It is not uncommon for markets to reverse course when the Moon is at apogee or perigee. For example, the major S&P 500 low on March 6, 2009 came right on a lunar perigee. The July 8, 2009 low came on a lunar apogee.
A Full Moon near perigee is called a Supermoon. One could think that should have an outsized negative effect, but the opposite is more common: Trading the Super Moon.
Lunar Nodes and Eclipses
Lunar nodes are where the orbit of the Moon crosses the ecliptic plane. Solar and lunar eclipses can only occur when the Moon is near one of the lunar nodes. Contrary to what astrological sources usually contend, solar eclipses tend to be positive for stock markets. See: Eclipses and the Stock Market.
Moon Latitude Cycle
The path of the Moon is slightly tilted to the plane of the ecliptic (inclination : ~ 5°). Most of the time the Moon is either above or below the ecliptic plane, and the measure of it is called Ecliptic Latitude. When the Moon reaches maximum latitude, either above or below the ecliptic, sudden price reversals are possible.
Moon Declination Cycle
The varying declination of the Moon manifests itself in the Moon appearing higher or lower in the sky. And this affects the direction of the Moon’s gravitational pull. While not as important as Moon Distance (Apogee-Perigee), we can watch for potential market reversals near extreme Declination.
Bottom line: the lunar green and red periods are the most important factor. The other lunar cycles are weaker and tend to kick in occasionally when two or more of them show extremes simultaneously, or when they coincide with a change between lunar red and green period.
