![Are the stock markets correlated to moon cycles? [photo: loveyourdesign.com]](http://www.getmoneyenergy.com/wp-content/uploads/2009/11/FullMoon.jpg "Are the stock markets correlated to moon cycles? [photo: loveyourdesign.com]")
I’ve heard some of the crazier stock market indicators before – the lipstick theory, the shorter skirts theory (are they all sexist?!) – for the directions that the markets and the broader economy are considered to be headed in. Some technical analysis sounds no less arcane – “triple tops” and “double bottoms” as signs of market turnarounds? Really?
But I’ve only just heard about the moon cycles theory of stock markets. According to Steven Whiteside of TheUpTrend.com (who is not the originator of this theory, by the way – he just pays attention to it and lets it inform his analysis), the ultimate peaks and valleys of a market tend to occur at new moons and full moons.
Stock Market Peaks On New Moons
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According to moon cycle analysis, new moons are highly correlated with peaks in the stock market while full moons are highly correlated with bottoms.
If you accept moon cycle theory, then you should buy stocks around a full moon and sell stocks around a new moon.
The moon cycle theory doesn’t say that all new moons will cause a market peak — just that major market peaks, when they occur, will tend to happen on a new moon. According to Whiteside, “significant changes in the markets happen around these times.”
Whiteside doesn’t actually make changes to his positions strictly based upon moon analysis. He uses it as a guide, but looks for further confirmation elsewhere that the market is making a top or a bottom before acting on the information. However, Whiteside is quick to point out that the market highs in 2007 were around a new moon and that the last two peaks in the market were also on new moons and the last two valleys were on full moons (including the “full moon low” in March 2009).
Stock Market Correction In December
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Accordingly, Whiteside observes that the TSX looks to be making a triple top right now – and we are also at new moon. So, if you’re looking ahead to the next major market correction… you guessed it, take a look at the period around the full moon coming up in December.
Although moon cycle analysis certainly sounds outlandish, it is no more outlandish than some other so-called economic indicators. I wouldn’t place trades on its basis, but I wouldn’t rule out the merit of someone doing a genuinely unbiased study further examining some of these correlations.
What do you think? Have you heard of this one before?
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{ 17 comments… read them below or add one }
Never heard of the cycle of the moon theory, although being a chartist, I do subscribe to the technical analysis model of stock picking (or stock avoiding).
My favorite TA formation would be the “cup and handle” or the inverse “head and shoulders”.
Ah yes, the inverse head and shoulders:) – By the way, I’m not discrediting technical analysis as such. I actually do understand a bit of the basis on which it can make its claims. And I should add that what I really meant instead of “sexist” above is gendered. (I’d edit it, but then the post would get republished – so I’ll just leave it).
No worries… sometimes the best way to make a memory stick is to be sexist, rude, or obnoxious. : )
The thing about TA is that it needs followers to make it work. If a stock hits a support level, and not enough people knew that it was time to buy, then the theory/practice would be ineffective. It’s kinda like religion or a protest that way… w/out the followers, it’s useless.
Really? I don’t have that impression at all – TA seems more descriptive than anything.
This is just correlation without causation. Interestingly enough Ritholtz at the Big Picture had a recent post on this where he shows rock music quality per year (based on Rolling Stone 500 greatest songs of all time) to directly correlate with oil production in the US. Neither caused the other.
http://www.ritholtz.com/blog/2009/11/hubbert-peak-theory-of-oil-rock/
Never heard of that one. Reminds me of Four Pillars of Investing, where they found correlations between the stock market and who won the Superbowl, or even butter production in Bangladesh!
Funny, I was just going to invent a high tide – low tide theory to predict the stock market.
As much validity to it as the Moon cycle theory, wouldn’t you say so?
In reality though, and this has a basis in facts, I have found that my portfolio performance is inversely correlated to the amount of tinkering I do to it :-)
@Tom – yes, the Superbowl theory is a fun one, too:)
@arohan – I like your tinkering theory!:) Yes, low tide-high tide would be a variant on the moon cycles theory – you should contact the analyst mentioned, maybe you can still contribute to the book!:)
@Chad – interesting points – even when there is strong correlation without causation… perhaps there is no causation between the two things compared, but perhaps both can be caused by something else? Even if hard to imagine in this scenario.:)
Most good TA is usually based on market psychology, as proponents believe you can see the emotions and actions of aggregate market participants creating those above patterns. I’d have a tough time seeing moon cycles fit into this.
For a detailed run-down on this theory with analysis, check out: http://marketsci.wordpress.com/2009/05/12/the-lunar-cycle-and-the-stock-market/
Nope, I’ve never heard of the moon cycles theory before. Although I have to say that I originally misread that as the motor cycles theory. I guess that’s just as plausible, right?
I am hearing about moon cycles for the first time. What is it exactly mean ?
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
@RetSav – actually, the analyst who was discussing the moon cycles theory did refer to the fact that supposedly there are some correlations between moon cycles and peoples’ moods (which might then translate to market behaviour). I’m not the one doing the experiments, so I can hardly say. Does seem to be a stretch, but no less outlandish than the short skirts theory!
There are numerous correlates between Moon Sun cycles and financial market activity. It is surprising that this has not been given earlier recognition. The earliest study I know of linking the lunar phase with the market was published in 1977. Probably the best site on this topic is:
http://www.davidmcminn.com
Most biological rhythms are governed by moon phases. Considering that the market is a total of individual decisions that due to technical analysis react upon decisions reflected in prices one must assume that these decisions are all algorithmic and none are gut feeling , sentiment, etc. I don’t believe human decisions are only rational.I rather believe decisions to be sentiment mood dependent and also rational. I should expect indeed
an influence of moon phase although weak. One could apply tools of dimensional complexity ( that gives the degree of dissimilarity) to verify this.
Sounds like you might know a thing or two about it, H.D. Franke – I agree there’s a lot of complexity involved, and you know what? Complexity exhibits macro patterns, too, so it wouldn’t surprise me to find larger patterns like that in trading activity.