Lunar Cycle – First Look
Many people would like to believe that there exists mystical cycles that they can use to unlock the secrets in the markets. Here is an introduction of lunar cycle and its applications on timing the US stock markets.
Lunar cycle in general refers to the concept of the duration of the Moon travelling around Earth for one full cycle.
There is more than one way to measure astro body cycle. There are many ways. Thus we will just focus on one of the more common one that is used for telling the moon phase like new moon, full moon, waxing, waning, etc. I hope you have heard those terms. If not, you can read it up in Wikipedia on Moon Phase.
Why Lunar Cycle?
Many believes that human behaviour is affected by astrobodies in the sky and that by observing the cycles of the Moon and other astrobody, we can predict the turning points in various markets.
Here is the Emini S&P chart with moon phase plotted below.
When the moon phase indicator make a swing low, that is the date that New Moon happens. When it is making a swing high, that is the date that Full Moon happens.
So far this year, the New Moons and Full Moons have produced a pretty good record of picking the tops and the bottoms, aren’t they?
To greatly simplify the concept, let’s say New Moon can be associated with the words Hope, New Beginning, etc. and Full Moon can be associated with Anxiety, Worry, etc.
Think about this critically. Even if classic astrology association of these emotions to the moon phase works on a large number of people, it is not directly applicable to the markets you trade. For example, a lot of people having anxiety does not automatically translate to a selloff because these individuals could be going into panic to buy at market so that they will not miss the train. By the same token, many people feeling hopeful does not mean that the market will rally because these individuals can be hopeful that they see a top in the making.
There are actually 4 significant points as oppose to just 2 points in the lunar cycle that have interesting properties.
Aside from New Moon and Full Moon, the midpoints between New Moon and Full Moon somehow plays an important role too.
These 4 points in the lunar cycle +/-1 day has a better chance of landing onto the swing high/low on S&P 500 daily chart than the other days.
Notice that it includes 12 days out of the 29 days duration of a lunar cycle. So the result is significant and probably useful for swing trading but not strong enough on its own for daytrading purpose as daytrading requires much higher precision in both timing and price levels.
The follow up articles will go into more details on lunar cycle and its applications.