Moon cycles in the markets
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 8th or 9th lunar month in the Chinese lunar calendar ( = 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 is significant, as you can see in this chart (1950 – 2009):
The green line shows the return on investment in 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 since the start of this blog. You can check out the performance page, where we keep track of the market movements during the red and green periods since 2009.
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)
Lunar Phase & Financial Panics (David McMinn)
Other moon cycles have rather weak effects, here are the ones that can be watched:
(called Moon Distance Cycle in the LunaticTrader software)
The Moon’s path around the Earth is slightly elliptic. At its closest point (perigee) the Moon is about 10% closer to Earth than at its farthest point (apogee). So the gravitational pull of the Moon varies, e.g. resulting in stronger tides when the Moon is at perigee.
In the markets it is not uncommon for prices to reverse when the Moon is at apogee or perigee, so we can look for short term turning points on these days. For example, the recent major low on March 6, 2009 came right on a lunar perigee. The July 8, 2009 low came on a lunar apogee.
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, lunar nodes and eclipses were found to be rather irrelevant for the markets.
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. So it affects the direction of the Moon’s gravitational pull. While not as important as the earlier mentioned Moon Distance (Apogee-Perigee), we can watch this cycle for potential market reversals when the Moon Declination reaches an extreme. I pay more attention to this cycle when an extreme in Moon Declination coincides with a peak or bottom in one of the other Moon cycles.