Manfred Zimmel - Amanita Market Forecasting - Lunatic Markets? Trading with the Moon (10/2002)

LunaticIn some percents of the time a market is in the so-called lunatic (emotional) mode which means that the lunar cycle (usually anchored close to the full moon) may heavily modify or even completely override all (!) other Amanita concepts. Markets? Trading with the MoonThe moon has a major impact on the markets, the full moon is more important than the new moon. (10/2002)

downloaded-ec1fad48f85d9661c691d40061b53048-1233055180.imgThe connection between the moonThe moon has a major impact on the markets, the full moon is more important than the new moon.cycleA cycle is a recurring event in the markets. and market prices is subject of frequent requests (mostly by astrological laymen), and since many incorrect assumptions are circulating on the net I have decided to put together a short summary on the subject.

First, let me start with a very important distinction between universal and transient moonThe moon has a major impact on the markets, the full moon is more important than the new moon. effects: universal means independent from context factors like market volatility, trend direction, trend strength etc., transient means effects varying with these external factors. In other words, some correlations detected today were no different 10 or 100 years ago while others evolve under certain circumstances, last for a while and then disappear again (because the market itself changes!).

Universal Lunar Effects

An excellent research paper on this subject has been published by the University of Michigan Business School: "Are Investors Moonstruck? Lunar Phases and Stock Market Returns" (http://webuser.bus.umich.edu/). The conclusions of the authors (p. 25) are

This paper investigates the relation between lunar phases and stock returns for a sample of 48 countries. We find strong global evidence that stock returns are lower on days around a full moonThe moon has a major impact on the markets, the full moon is more important than the new moon. than on days around a new moon. Constructing a lunar trading strategy, we find that the magnitude of this return difference is roughly 4.2 percent per annum. Since lunar phases are likely to be related to investor mood and are not related to economic activities, our findings are thus not consistent with traditional asset pricing theories that assume fully rational investors. The positive association we find between lunar phases and stock returns suggests that it may be valuable to go beyond a rational asset pricing framework to explore the psychological effects of investor behavior on stock returns.

The charts below by Bill Meridian http://www.cyclesresearch.com/ based on Dow price data of 80 years and S&P 500 price data of  35 years illustrate the idealized curve (0% on the x-axis is the new moonThe moon has a major impact on the markets, the full moon is more important than the new moon., 25% the first moonThe moon has a major impact on the markets, the full moon is more important than the new moon. quarter, 50% full moonThe moon has a major impact on the markets, the full moon is more important than the new moon., and 75% the third moonThe moon has a major impact on the markets, the full moon is more important than the new moon.). The idealized stock market low is 2-3 days before the new moonThe moon has a major impact on the markets, the full moon is more important than the new moon. and the high 3-5 afterwards; the time around new moonThe moon has a major impact on the markets, the full moon is more important than the new moon. is the most bullish time period within the lunar cycleA cycle is a recurring event in the markets. and the time around full moonThe moon has a major impact on the markets, the full moon is more important than the new moon. the most bearish.

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These effects are, without doubt, real and consistent, yet the effect size is only 0.25% which is very small; nevertheless a "moonThe moon has a major impact on the markets, the full moon is more important than the new moon. strategy" beats buy-and-hold by 4% thus outperforming the expertise of 80-90% of all financial professionals.

Transient Lunar Effects (LunaticIn some percents of the time a market is in the so-called lunatic (emotional) mode which means that the lunar cycle (usually anchored close to the full moon) may heavily modify or even completely override all (!) other Amanita concepts. Markets)

Transient lunar effects are mostly found in emotional markets because the moonThe moon has a major impact on the markets, the full moon is more important than the new moon. is the symbol for the human emotions, and the more emotional the market the visible the influence of the moonThe moon has a major impact on the markets, the full moon is more important than the new moon. becomes. That's why I prefer to call these markets "lunaticIn some percents of the time a market is in the so-called lunatic (emotional) mode which means that the lunar cycle (usually anchored close to the full moon) may heavily modify or even completely override all (!) other Amanita concepts." which contains "luna", i.e. the moon. [The reference point for lunaticIn some percents of the time a market is in the so-called lunatic (emotional) mode which means that the lunar cycle (usually anchored close to the full moon) may heavily modify or even completely override all (!) other Amanita concepts. markets is primarily the new moon]

It's not surprising that during crashs (=maximum emotional intensity) the moonThe moon has a major impact on the markets, the full moon is more important than the new moon.cycleA cycle is a recurring event in the markets. is dominant. Chris Carolan's research has proven that panic lows are usally approximately 55 hours before new moons.

I observed a similar phenomenon with the euro in 1999 and 2000 when all three major bottoms (against the USD) came in about two days before new moonThe moon has a major impact on the markets, the full moon is more important than the new moon. (article available in German only).  The weakness of the euro was almost exclusively caused by emotional factors and fundamentally not justified which is an indication of a lunaticIn some percents of the time a market is in the so-called lunatic (emotional) mode which means that the lunar cycle (usually anchored close to the full moon) may heavily modify or even completely override all (!) other Amanita concepts. market and the reason this pattern changed when the longer-termLonger-term means a time horizon of 3-12 months. trend of the euro switched from bearish to bullish on October 26, 2000. Since that date, the predictive power of the lunar cycleA cycle is a recurring event in the markets. has been considerably lower and major bottoms are mostly found around full moonThe moon has a major impact on the markets, the full moon is more important than the new moon. now (and major tops in the first moonThe moon has a major impact on the markets, the full moon is more important than the new moon. quarter). Consequently, I expect this pattern will change again after the next longer-termLonger-term means a time horizon of 3-12 months. trend reversal of the euro in 2003.

Advice for Traders

book recommendation:
Ray Merriman, The Ultimate Book on STOCK MARKET TIMINGIn the Amanita prognostications, timing is almost always more important, reliable & precise compared to prices. The standard window for all time projections is +/- 1 week, with the exception of the Amanita pivots (+/- 1-2 days). - Vol. 4. Solar-Lunar Correlations to Short-Term Trading CyclesA cycle is a recurring event in the markets. (link)