LunaticTrader

Investing with the Moon

Moon cycles in the markets

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 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):

long term

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:

Apogee-Perigee Cycle

(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.

 

 

8 Responses to “Moon cycles in the markets”

  1. Hi Danny

    Do you have any research that links lunar perigee (increased gravitational pull) to periods of negative stock market performance?

    Thanks in advance.

    TDL

    • Danny said

      Hi TDL,

      Yes. Lunar distance cycle (light blue line in my software) has some connection to stock performance.
      But the period around perigee (Moon close to Earth and thus stronger tides) has historically been the stronger period for stocks, with more weakness seen around apogee (= moon further from Earth and a weaker tidal effect). That is based on S&P 500 performance since 1950.

      Hope this helps.

      Danny

      • Thanks Danny. So probably best to treat them as potential turning points/ pivots.

      • Danny said

        Yes. As with all lunar and other cycles the effects are rather subtle and do not show up every cycle. In everything lunar/solar/gravitational/geomagnetic we are lucky if it “works” 60% of the time, and thus we have to be prepared for the 40% of the time these natural cycles do not pan out as expected.
        It is like being able to predict a coin toss 60% of the time. We would have a small edge in betting but we will have our losing streaks too.

        In actual practice it means that we can use the moon distance cycle, consider it for potential turning points, but we look for confirmation from price action or from other methods (e.g. indicators) to find the really good plays when odds are in our favor.
        We can not focus too much on any natural cycle and expect it to work like a Swiss clock to pull profits from the market. The perigee-apogee effects are generally weak at best.

        Danny

  2. alex0136 said

    Danny,

    I have been trying to find the formula to calculate the daily geocentric moon declination.
    I see you have this computed on the website. Would you be willing to share this formula
    with me or let me know what reference you used to program this. Thank you!

    Regards,

    Alex

    • Danny said

      Hi Alex,

      Astronomical formulas are generally very complex, at least if you want accurate data.
      Depending on your purpose it is usually better to pull up an ephemeris file for the cycle you want to use.
      Three sources you can use to get ephemeris file for moon declination:
      1) NASA Horizons – online service (just google for it)
      2) Riyal freeware program: http://www.expreso.co.cr/centaurs/riyal.html
      3) Swiss ephemeris dll (can be called from excel spreadsheet): http://www.astro.com/swisseph/

      Hope this helps.
      Danny

  3. Co said

    Your statement: “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).”

    But you don’t state when does the green period end, and when does the red period end. Your starting period does not match those of the authors of some of you referenced articles.
    Also those authors clearly state the best correlation is 3 days before and after the New or Full moon for better market performance of New Moon period compared to the Full Moon period. They also said 7 days before and after New Moon was also better than the 7 days before and after the Full Moon.

    Can you clarify your end points of your green and red periods?

    • Danny said

      Hi Co,

      The green period ends when a new red period starts, and a red period ends when a new green period starts. We have been keeping track of them in out of sample testing since 2009 on the performance page: https://lunatictrader.wordpress.com/performance/ .

      You are quite right in observing that we are not merely copying the work of the authors of referenced articles.

      Hope this helps.

      Danny

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