Can the moon predict stock prices?
Recent evidence suggests the lunar cycle is calling the major turning points
For 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.
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.
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