Stock Market Lunacy - Have the Bulls Been Eclipsed?   Monday, March 5, 2007
By Anthony Kolton
 If you watched the news over the weekend, there was a total lunar eclipse. Since it was cloudy here in Chicago, I did not get a chance to see it.
Since the stock market crash in 1987, I have always been leery of full moons and aware that sometimes they coincide with large smashes in the market. But, I was quite surprised to learn over the weekend, playing around with my Market Information Machine, just how bearish a total lunar eclipse is, if preceded by a week of weakness in the DJIA similar to what we experienced last week. Q: How has the Dow Jones Industrial Average (DJIA.A) performed in the past when it has seen a decline of 2.5% or more in the week preceding a total eclipse of the moon? A: Although there are not many occurrences (6 prior ones) of the DJIA declining more than 2.5% in the week before a total lunar eclipse, in every single case, they are bearish for at least four months after this event, with the average decline being around 11%.
EventEdge indicates that DJIA.A has shown a very strong bearish edge that peaks 74 trading days after the event. DJIA.A declines in 100% of the cases (6 of 6) by an average of -11.8% relative to the close on the event date. I actually do not think that the season is ripe for a super huge smash in the market as they usually occur in the Fall, and I had been expecting some significant weakness this Fall, not now. Also, if interest rates keep falling, then I will soon get a major buy signal based on this, and I will let you know when and if this happens. In any event, I still like HSY and owning the August 55 calls. If things do get ugly, it is good to be long a good defensive stock such as this one. Food stocks and utilities should hold up better than other stocks. People need to eat and they need electricity! Anthony Kolton is president of Logical Information Machines and Markethistory.com, Inc.
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| | Table 1 - Returns of the Dow in the months following the event:
Date Day m+1 m+2 m+3 m+4 m+6
05/03/1920 Mon -3.3287 -1.9462 -9.0290 -6.3597 -9.6140
02/20/1924 Wed -0.7248 -5.4256 -8.5421 -3.2098 9.3083
04/02/1931 Thu -14.3093 -28.3654 -10.8364 -20.3073 -42.9749
09/25/1931 Fri -0.8920 -14.3000 -30.9667 -28.3998 -29.0097
09/15/1978 Fri 2.1103 -10.5799 -8.3319 -3.4011 -3.5889
01/21/2000 Fri -9.1736 -3.0606 -3.6231 -5.5534 -4.6052
03/02/2007 Fri NaN NaN NaN NaN NaN
Avg -4.3864 -10.6130 -11.8882 -11.2052 -13.4140
AvgPos 2.1103 NaN NaN NaN 9.3083
AvgNeg -5.6857 -10.6130 -11.8882 -11.2052 -17.9585
PctPos 16.6667 0.0000 0.0000 0.0000 16.6667
PctNeg 83.3333 100.0000 100.0000 100.0000 83.3333
Maximum 2.1103 -1.9462 -3.6231 -3.2098 9.3083
Minimum -14.3093 -28.3654 -30.9667 -28.3998 -42.9749
StdDev 6.1697 9.8773 9.6481 10.5712 19.0890
ZStat -0.7110 -1.0745 -1.2322 -1.0600 -0.7027
Variance 38.0649 97.5610 93.0849 111.7508 364.3886
7 Occurrences
Table 2 - Returns of the Dow in the peak edge trading days following the event
as determined by the EventChart above:
Let variable values:
@ = DJIA_ACT
theEvent = IF
Date is in "ASTRO/eclipse_lunar_total.date"
AND
1 week percent_move of DJIA is less than -2.5
THEN 1
ENDIF
Date Day t-5 t+6 t+25 t+37 t+74
05/03/1920 Mon -3.3 -1.6 -2.7 -3.3 -10.8
02/20/1924 Wed -3.2 0.7 -3.8 -6.9 -7.7
04/02/1931 Thu -6.5 0.7 -9.1 -21.6 -16.4
09/25/1931 Fri -4.5 -21.3 -4.9 -7.8 -22.3
09/15/1978 Fri -3.2 -1.8 -4.6 -8.9 -7.6
01/21/2000 Fri -4.0 -2.8 -12.4 -12.8 -6.0
03/02/2007 Fri -4.2 NaN NaN NaN NaN
Avg -4.1 -4.4 -6.2 -10.2 -11.8
AvgPos NaN 0.7 NaN NaN NaN
AvgNeg -4.1 -6.9 -6.2 -10.2 -11.8
PctPos 0.0 33.3 0.0 0.0 0.0
PctNeg 100.0 66.7 100.0 100.0 100.0
Maximum -3.2 0.7 -2.7 -3.3 -6.0
Minimum -6.5 -21.3 -12.4 -21.6 -22.3
StdDev 1.2 8.4 3.7 6.4 6.3
ZStat -3.5 -0.5 -1.7 -1.6 -1.9
Variance 1.4 70.7 13.7 40.6 40.2
7 Occurrences | |
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DJIA.A