LunaticTrader

Investing with the Moon

Posts Tagged ‘Geomagnetic storm’

Using the Moon for trading. Really?

Posted by Danny on November 10, 2014

A lot of traders scoff at the idea of lunar cycles in the stock market. But I like that, because if too many people start using a given edge in the market it usually leads to its disappearance. When something gets used up to full “capacity” then it fades away. So, as long as enough traders discard lunar cycles as “astrology” without taking a closer look, so long it probably helps to keep our little lunar edge alive. So far this year, the Nasdaq has gained 533 points in our lunar green periods and it has lost 5 points in the lunar red periods. Not bad. More on this below, let’s first take a look at the S&P 500 (click image to enlarge):

S&P500

The S&P has continued to grind up and is now bumping into overhead resistance near 2030. We are starting a new lunar green period, which normally favors further gains. But in this case it doesn’t really look like a favorable setup for going long, because all my indicators are into oversold territory. The Earl has already turned down, and the MoM resides in overoptimistic +8 spheres. The slower Earl2 is still climbing nicely, which keeps the door open for new highs.
Overall, it is a situation where I think the next few weeks are going to be sideways at best, with good odds that we will see a retest of the 2000 level and possibly even 1950. There is no reason to become overly bearish at this point, but the market probably needs to catch some breath.

***

The day to day movements of stock markets are commonly attributed to changes of mood in investors. But that begs the question: where do these mood changes come from? Is it merely a result of getting good or bad “news” about the economy, or is there more to it?
Quite a bit of research has been done in this field. Here are some topics that may interest traders:

1) Sunshine. Do you feel more upbeat on a bright sunny day? So do many other people/traders. There is a correlation between sunshine and stock market returns: Good Day Sunshine:Stock Returns and the Weather
2) Seasons. Do you suffer from seasonal affective disorder (SAD)? In some countries 10% or more of the population does. There is a correlation between the seasonal variation of the length of the day and stock returns, also known as the seasonal tendencies: Winter Blues and Time Variation in the Price of Risk
3) Geomagnetic storms. Geomagnetic disturbances seem to affect a portion of the population. Stock market returns are lower in the six days after a geomagnetic storm. See this Atlanta Fed working paper: Playing the Field: Geomagnetic Storms and the Stock Market

In all those cases a hormone called melatonin is involved. If we have lowered melatonin levels we feel depressed, and then we probably trade accordingly. This brings me to:
4) Lunar phases. Swiss researchers found new evidence suggesting that a portion of the population doesn’t sleep so well in the days around full moons. It also knocked down their melatonin levels. Bad Sleep: Blame the Moon That would be a good explanation for the weaker stock market returns in our lunar red periods, which end 3.5 days after full moon.
5) Days of the week. Stock returns are historically weaker on Mondays. Why? Are melatonin levels also down because some people had some shorter nights over the weekend? Or because some do not really look forward to another week of labor. The Day of the Week Effect

Our mood is clearly a complex animal, with many artificial and natural factors coming together to influence our emotional state. Some natural factors are affecting the entire world population at the same time, and appear to be partially responsible for the day to day moves in financial markets.

Good luck,
Danny

Posted in Financial Astrology, Market Commentary | Tagged: , , , | 5 Comments »

Solar Flares

Posted by Danny on April 1, 2013

Markets did not break down in the second week of our lunar Red period, and even recorded new highs.
This is a sign of ongoing strength.
What does that mean going forward?

Let’s have a look at the chart for the Nasdaq (click for larger image):Nasdaq

The market has closed right near the overhead resistance. That means it will not be easy to add to the recent gains, unless we see a proper breakout to the upside. The new lunar green period favors a move to the upside. The question will be: is there enough fuel left in the tank to move even higher, and more importantly: hold on to whatever gains we get?
My Earl indicator (blue line) is bottoming, indicating that there is now room for another push to the upside. But the Earl2 (orange and red line) remains bearish. This means any new push to the upside could be quickly reversed.
So, I am going to remain cautious. The trend is still up, but I would now keep my stop-loss at 3225 for the Nasdaq.
Any drop below that level would break the uptrend, and probably signal the start of a larger move to the downside.

What could trigger a downturn? Well, among many other things I would watch out for solar flares this week.
A few weeks ago, we had a post about Watching solar activity.
Watching for potential solar flares is equally important, because solar flares cause geomagnetic storms, which are known to have a negative effect on stock markets. That’s why we keep a solar flare monitor on our Solar Activity page. I watch it every day before the market opens. So what to look for?
Here is today’s picture:
Solar flare monitor

First thing to know: the sun has a slow 27 day rotation period, and sunspot areas move from left to right in the picture. Most sunspots are harmless, but bigger sunspot groups can release solar flares, including the rare and dangerous X-class flares.
So, when a big sunspot group becomes visible at the left of the picture, then we know it will come near the middle of the picture after about 7 days and then it will be pointing right to us. If an X-flare happens when our planet Earth is right in the “crosshairs”, then a massive geomagnetic storm occurs. This can knock out satellites and cause blackouts.
Historic examples are the Solar storm of 1859, the May 1921 geomagnetic storm, the March 1989 geomagnetic storm (blackouts in Quebec), the Bastille Day event, the Halloween storms of 2003

The stock market usually doesn’t respond well to X-class flares (probably because of the risk for economic damage).
* March 6, 1989 storms: S&P 500 dropped 2% over the next two weeks.
* Juli 14, 2000 (Bastille Day Event): S&P 500 dropped 100 points (~6%) in the next two weeks.
* Oct 19, 2003 (start of Halloween Storms): S&P 500 lost 30 points (~3%) in one week.

The most recent X-class flare that came our way was on October 24, 2012 and the S&P 500 lost 60 points (~5%) over the next two weeks.
The market doesn’t always lose 100 points, but usually there is some effect in the market after an X-class flare.

The good news is we have tools to anticipate when X-flares might come our way.
As you can see in the current flare monitor picture (above), a big sunspot area (number 05) has appear on the left side. The table on the right shows you that this is a dangerous sunspot group. The risk for M-class flares is 18% and the risk for X-class flares is 6%. As this group will probably remain in view for another 10 days, we better keep an eye on it.

Good luck,
Danny

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Posted in Market Commentary | Tagged: , , , | 5 Comments »

 
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