We are entering the first eclipse season of the year, so today I will share some research before we present our current interpretation of the market.
Upcoming lunar and solar eclipses are known in advance and sometimes announced in the news. And on astrology related sites you will usually find forecasts about the impending disasters that are going to hit us as a result of the next eclipse. Indeed, eclipses have had a bad reputation for centuries.
But it is also clear that we get a couple of eclipses every six months, usually in the form of a solar eclipse preceded or followed by a lunar eclipse. Obviously the world is not ending every six months.
So, how do eclipses influence the stock market? If they evoke fear in a lot of people, then we would expect some effect.
Well, I have looked into all eclipses going back to 1950, and how they have affected our lunar Red and Green periods in the stock market.
Solar eclipses always come within a lunar Green period, because solar eclipses always come on a new moon day. Lunar eclipses always happen on a full moon in the lunar Red periods coming before or after a Green period with a solar eclipse.
The result (based on over 130 eclipses in 60 years): solar eclipses have historically been very good for the stock market.
Investing in the eclipse Green periods has yielded and annualized 17% gain, vs 11% annualized for all Green periods. That’s significantly better than average.
Of course, that doesn’t mean the stock market never goes down in eclipse Green periods.
About one eclipse green period out of six has generated a decline of more than 2%. But once out of four it has produced a gain of over 2%, and in 10% of the cases it produced a better than 4% gain.
But that’s not the end of the story. I also looked in the Red periods that come before and after a solar eclipse. This are typically the periods that contain the lunar eclipses.
These Red periods have a negative expectation, especially the red period that comes before a solar eclipse. It doesn’t really matter whether the period gets a lunar eclipse or not, these periods have averaged an annualized loss of 8.5%.
Again, this doesn’t mean that every red period before a solar eclipse has been negative. In about 15% of the cases these periods have shown gains of over 2%.
But in 33% of these periods there has been a loss of over 2%, and in 20% of the cases the loss was over 5%.
So, fairly often these red periods have produced significant downturns in the market.
The red periods that come after a solar eclipse are less outstanding and have just a break-even expectation, they tend to go either way.
Bottom line: historically the most profitable strategy going into eclipses has been: go short in the Red period before a solar eclipse, and then go long in the ensuing Green period that contains the solar eclipse.
There will be a solar eclipse on May 10th. This means we are now starting the Red period that precedes this eclipse, the most dangerous type of Red period in the cycle. Given that the market has climbed to record highs, the setup for a sudden downturn is fully in place.
Let’s have a look at the current Nasdaq chart (click for larger image):
The Nasdaq is trying to follow the S&P with a break out to the upside. But there are warning signs. The Earl2 remains negative for the moment, but could turn into a buy if the market continues to go up from here. In the shorter term Earl we see a bearish divergence shaping up.
So, given the history of eclipse red periods, I have now sold almost all my stocks and bought some put options.
One doesn’t need to be fully invested in the market at all times. These eclipse red periods are the best time to stay away from the market, and if a downturn materializes then you can jump back in to benefit from the positive Green period that often comes with the solar eclipse.
Thanks. And first let me say Holy #@%$… You did in less than an hour what would take me about a week… As soon as I get some cash flow I need to ante up and grab some software from you. I especially like your Earl indicators and the whole process of not muddying the water with too many measurements… and still that being said it is very wise not to hang our hats on a single observation. This transit of Saturn is very potent in that the eclipses are in money signs as is Saturn and we have the whole Pluto-Uranus thing going on…. BUT with a Grand Trine involving Jupiter, Saturn-Neptune-Jupiter definitely stir up the sediment (sentiment?). We will need to watch it carefully as no present cycle exactly mirrors past cycles. I find that approaching squares have different energies that waning squares for example and to your point the outer planets simply do not provide enough samples.
So impressed by your work and with your dialog with John. Together you both have offered readers a very high level of knowledge, learning and respect. Remarkable.
Since I already had done the work for the eclipses it was not that difficult to add a few tables with the Saturn-Node conjunctions and oppositions and use it as a filter.
This research is not done in the software program I offer.
I just use excel to hunt for some statistical edge here and there, and it also allows me to quickly create charts, like for the LT wave or for the sunspot cycles.
You could also use the free gnumeric instead of excel.
Another tool (free) I use from time to time is RapidMiner. Once you get used to it there are many possibilities that come within easy reach (like neural nets and other data mining). So many new possibilities are opening up thanks to cheap computing power…
I think interaction with sites that cover similar topics, like John’s solarcyles.net, is helpful and can lead to new ideas and inspiration in this field.
Great work. The Solar Eclipses of May and later in the year in November occur opposed each other and will be traversed by Saturn from January through October 2014. January May and October appear to be nearest the eclipse degrees. Interesting in that the trine between Saturn and Neptune often correspond with financial crisis and a decline in economic activity.
Thanks for all your good work.
Thanks for that info.
Personally I have always found it difficult to mix in other cycles, like Saturn or Neptune, and still keep a clear picture in my mind. I guess that depends on how we are “wired”.
Like in this case I have studied about 130 eclipses, which is already a rather small sample. I could filter out those eclipses that had Saturn in the same or in the opposing sign, and then I would be left with only 20 cases to study. Unless we can find a very strong effect that happens in all (or nearly all) of these 20 cases, it will be difficult to draw conclusions that we can use in our trading.
That’s the problem I always face with studying longer term cycles, like also with the sunspot cycle: we have only about 20 observed cycles.
But I am curious to take a look, and will report if I can find anything for eclipses affected by Saturn.
Just took a look at 30 eclipses that had conjunction or opposition with Saturn.
On average it is very similar to the overall performance during eclipses.
When Saturn is conjunct North Node, then the Red periods before the solar eclipse are down a bit more than the average eclipse red period.
And when Saturn is opposite North Node, then the Green periods containing the solar eclipse are more positive than the average eclipse green period.