Moon Cycles – A catalyst for short-term trend changes.
In the stock market, investors are constantly searching for any advantages they can get. The influence of moon cycles on financial markets is one such notion that has drawn interest for years. Although it might seem improbable, some data suggests moon cycles may affect stock market performance.
The moon’s gravitational pull has a significant impact on nature, particularly on the Earth’s oceans and tides. During a full moon, the gravitational pull of the moon and the sun combine to create higher tides, known as spring tides. Conversely, during a new moon, the gravitational pull of the moon and the sun are at right angles, resulting in lower tides, known as neap tides. These tides can impact the behavior of marine animals, such as feeding patterns and breeding habits. Additionally, the moon’s cycle can affect the behavior of nocturnal animals, which may be more active during the brighter nights of a full moon. Overall, the moon’s cycle has a complex and fascinating relationship with the natural world.
So what about the moon cycles’ effect on investors?
The theory underlying this notion is that human behavior, particularly decisions made by traders and investors in the financial markets, can be influenced by the lunar cycle, which lasts around 29.5 days. This hypothesis has its origins in prehistoric ideas that the moon has mysterious powers and can affect different facets of Earthly life.
The time between a full moon and a new moon is approximately 14.75 days.
The idea that stock market returns are higher between the new moon and full moon when the moon is in its waxing phase, and lower between the full moon and the new moon, is one of the most frequently stated. This is based on the idea that while the waning phase is connected to contraction and decline, the waxing phase is associated with growth and expansion.
This is not why we watch the moon cycles.
Another hypothesis contends that the full moon might result in exaggerated feelings and impulsive actions and feeling, which can exacerbate market volatility. This is because it is thought that the full moon raises the body’s level of the hormone cortisol, the stress hormone. Although there is some evidence to back up this theory, the effect will probably be minimal.
Our experience has been that moon cycles can be a catalyst for a short-term change in trend when there is a void of news. Very useful for swing traders.
Nevertheless, there are a lot more things that can affect the financial markets. They consist of news about specific companies, global events, central banks, and economic data.
Notwithstanding these findings, many investors are still dubious about the possibility of moon cycles having an impact on the stock market. They contend that there is no scientific proof that the moon has any influence on people’s conduct, much less their ability to make sound financial decisions.
So, what does all of this mean for investors? Should they pay attention to moon cycles when making investment decisions? The answer is no. While it may be tempting to look for patterns in market behavior, it is important to base investment decisions on solid financial analysis and data, rather than superstition or mythology.
So, what does all of this mean for short-term traders? Swing traders will find it quite useful to look for short-term tops and bottoms to correlate around the change in the moon’s cycle.
As an investor, it is important to remain skeptical of any theory that lacks strong empirical evidence. Instead, investors should focus on sound financial analysis and data-driven decision-making when investing in the stock market. While the idea of moon cycles impacting financial markets may be intriguing, it is unlikely to be a significant factor in the long-term performance of stocks. So it should only be considered by short-term traders looking for short-term trend changes in the market.
It is important to note that moon cycles often happen on weekends or holidays. This means their effects on the market may be felt on trading days before or after weekends or holidays.
On the charts below, you can see the movement between New Moons and Full Moon and the S&P and Crude Oil making short-term trend changes around the changes in the moon cycle.