Can the moon predict stock prices?

Recent evidence suggests the lunar cycle is calling the major turning points

By Anthony Mirhaydari Dec 7, 2009 4:09PM

MirhaydariFor many, technical market analysis can seem like a dark voodoo art. At its most basic, the discipline is based on simple observations of price and trading volume. Resistance lines, trend lines, moving averages, and relative strength are the more respectable and widely used tools by traders and professional investors.

 

But on the fringes, practitioners use complex mathematical formulas, seasonal patterns, short-term statistical relationships, and even the metaphysical to uncover profitable trading opportunities. Popular tools carry indecipherable names like Kondratieff waves, Elliott waves, and Fibonacci retracements.

 

And yes, even the phases of the moon have been shown to have a relationship to stock and gold prices. Indeed, last week's dramatic selloff in gold as well as the March low in stock price all coincided with full moon events.

 

Gold, Stocks, and Full Moons

 

Recently, I've noticed that full moons have marked important turning points for both stocks and gold. There's no way to know how long the relationship will last, but as you can see in the chart above it's been fairly accurate over the last year.

 

There is evidence that the lunar phase affects behavior and mood among humans. So is it too much of a stretch to believe that the moon could have an impact on financial markets? Two academic papers, both by teams at the University of Michigan (here and here), suggest the connection is real.

 

They find that stocks perform better in the days surrounding new moons compared to those around full moons. And the results were widespread: One of the studies found evidence of the lunar phenomenon in all major U.S. stock indices over the last 100 years as well as nearly all major foreign stock indices over the last 30 years.

 

As for the moon's relationship with gold, Tom McClellan of the McClellan Market Report finds that full moon dates tend to act as either turning points or acceleration points. In a note to clients over the weekend, Tom wrote that it was "pretty clear that Wednesday's full moon had some effect in terms of bringing about a downside reversal."

 

Now obviously all of this needs to be taken with a grain of salt. And I don't recommend trying to trade the lunar indicator. But given the way the chart lines up, it's hard not to peer up at the night sky and wonder.

 

For what it's worth, the next full moon is due New Year's Eve. This suggests (if the relationship holds) that the last trading day of the year could mark a significant change in the short-term trend. Stay tuned.

 

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

 

Anthony Mirhaydari is a researcher for the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

5Comments
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
279
279 rated 2
416
416 rated 3
647
647 rated 4
548
548 rated 5
513
513 rated 6
669
669 rated 7
516
516 rated 8
317
317 rated 9
113
113 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.