LunaticTrader

Investing with the Moon

Sunspots high – sell or buy?

Posted by Danny on March 9, 2013

This is a follow up chart to our article about the solar cycle we posted back in January: New highs

One reader pointed out that the actual sunspot peak can come anywhere between 3 and 5 years after the start of the cycle, and is thus not very visible in the charts that we presented.
That’s a fair criticism, and I have now generated another chart that makes the market activity before and after and solar peak much easier to see.
I have used the Dow Jones Industrials average and the months of maximum SSN (smoothed sunspot number) have been derived from http://sidc.oma.be/sunspot-data/.

This chart shows you how the Dow Jones has moved from 1 year before sunspot max until 1 year after, for all solar cycles since 1798 (=SC5) (click for larger image):

solar cycle peak vs DJIA

Nineteen solar cycles were considered in this study.

By normalizing all sunspot peak months to 1, it becomes very easy to see whether the market went up into the solar peak, and we also see what happened in the 12 months after each solar peak.
We can see it is very much a mixed bag.
In 8 cases the market went down in to the solar max, in 9 cases the market rose into the solar peak, and in 2 cases the market was breakeven. This is comparing the Dow Jones at sunspot peak versus the Dow Jones 1 year before it.
If we look what the market did in the 12 months after the sunspot max, we see 8 cases where the market went up, 8 cases where it went down, and 3 cases that were breakeven.

Is there perhaps some connection between what happens in the 12 months before and the 12 months after?
If we look at the eight solar cycles where the market declined into the solar peak, then we find that the market subsequently turned up on 4 occasions, it continued to go down in 3 cases, and was flat in 1 case.
If we look at the 9 cycles where the market went up in the year prior to a solar peak, then we find that the Dow Jones turned down in 4 cases, it continued to go up in 4 cases, and it went flat in 1 case.

The bottom line is that in these 19 solar cycles:
* the sunspot peak was near a peak in the Dow Jones on 4 occasions
* the sunspot peak came near a bottom in the Dow Jones on 4 occasions
* the Dow Jones just continued in its pre-solar peak direction on 7 occasions

Basically, the solar cycle peak does not help us to decide whether we should sell or buy, regardless of what happened in the 12 months prior to the sunspot peak. Half of the time the market reverses direction, half of the time it doesn’t reverse direction.
There is also no obvious recurring pattern from cycle to cycle.
This is the table of monthly values for each cycle (click for larger image):

sunspot peak table

Danny

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