In the last 150 years there have been several papers published demonstrating correlations between these natural phenomena and the financial markets and the macro economy, largely ignored by the financial and business media. I will provide evidence that solar phenomena are the underlying cause of several financial and macroeconomic phenonema, and therefore deserving of a more central role in trading stocks and commodities.
Trading the Sun, Economic Rot and the Emerging Housing Stealth Bull Market
John Hampson of www.solarcycles.net has made available to our readers a 26 page analysis of the influence of the sun on the financial markets and the macro economy.
Trading the Sun
John writes: There is an 11-year (average) cycle of solar activity, measured in sunspots. Solar activity causes geomagnetic disturbance on Earth. The sun is also responsible for a cycle of nocturnal lunar illumination on Earth that lasts approximately a month.
Psychological and behavioural research links geogmagnetism and lunar phasing with human mood, and sunspots with human excitability. Studies also link altered moods to more cautious behaviour, including financial decisions. In the last 150 years there have been several papers published demonstrating correlations between these natural phenomena and the financial markets and the macro economy. However, perhaps due a lack of scientific consensus over causality, solar phenomena remain niche disciplines in trading and economics, largely ignored by the financial and business media. In this document I will attempt to provide evidence that solar phenomena are the underlying cause of several financial and macroeconomic phenonema, and therefore deserving of a more central role in trading stocks and commodities.
The broadly accepted classification of disciplines used in trading the financial markets is four-fold: (i) fundamental analysis including macroeconomics (ii) technical analysis, (iii) financial astrology and (iv) quantitative analysis. From (i) I will demonstrate the influence of solar phenomena on growth, inflation, demographics and asset cycles (stocks and commodities), and from (ii) I will explain how solar phenomena drive sentiment, stock market seasonality and waveform. I will also demonstrate the link between financial astrology and solar phenomena, and explain the decennial cycle.
History Of Research In 1843 the German astronomer Schwabe discovered the solar sunspot cycle. By 1875 William S Jevons published his theory (1) that business cycles were related to these sunspot cycles, arguing that sunspot activity affected weather which affected agricultural output and prices which affected overall economic activity. As his supporting evidence contained flaws, he was largely discredited. However, Garcia-Mata and Shaffner (2) reworked Jevon’s theory in 1934 and concluded that there was a clear statistical correlation between the major cycles of non-agricultural business activity in the U.S. and the solar cycle.
Meanwhile, Alexander Tchijevsky wrote the paper Physical Factors of the Historical Process (3). He compared sunspots records to major historical events in 72 countries from 500BC to 1922, and found a concentration around solar maximums. He divided the solar cycle into 4 periods and found correlations between human behavior and these periods: 1) a three year period of minimum activity characterized by passivity and autocratic rule; then 2) a two year period during which masses begin to organize under new leaders and one theme; followed by 3) a three year period of maximum excitability, revolution and war; and lastly 4) a three year period of gradual decrease in excitability until the masses are apathetic. He considered these variations as Mass Human Exitability.
In 1965 Charles Collins found that, based on 93 years of data, a major stock market top is due when the average yearly number of sunspots rises to over 50 (4). Edward Dewey in 1968 found 43 activities that fluctuated with the sun’s 11 year cycle, including commodity prices, stock prices, banking activity, business activity, industrial production and agricultural productivity (5). Bryan Walsh wrote an article in the Cycles magazine in 1993 (6) putting some of Dewey’s claims to the test. By computing the rate of change in the geomagnetic field over the years (using the Ap index) together with the annual rates of for several measures of economic and financial performance (GNP, CPI, stock prices, gold price, bonds), he found the former led the latter by 6 to 12 months and had an average 65% correlation.
Krivelyova and Robotti found strong empirical support in favour of a geomagnetic storm effect in stock returns after controlling for market seasonals and other environmental and behavioural factors (7).
Regarding the sun’s illumination of the moon and its correlation with stock market returns, there have been several recent papers written. Illia Dichev and Troy Janes (8) demonstrated that stock returns in the 15 days around a new moon were around double those in the 15 days around full moons, for all major US stock indices (100 years data) and nearly all stock indices of 24 other countries studied (30 years data). K Yuan, L Zheng and Q Zhu (9) investigated the correlation between lunar phases and stock market returns for 48 countries and found that returns are lower around full moons and higher around new moons by 3-5% per annum, factoring out volatility, volume, and other calendar related phenomena. Marco Hickey (10) found positive correlation between 5 US stock indices and returns around new moons, and the inverse for the 10 year bond (using 10 years data).
In recent years biological evidence has come to light that sunspots and solar cycles do impact humans physiologically, which are supportive of Tchijevsky’s earlier social studies. William Hrushesky, in his 2011 paper (11) noted slight elevations in oral temperature, pulse rate, blood pressure, and respiration rate and a slight decrease in the man’s maximum expiratory flow that peaked several months after the occurrence of solar sunspot maximum.
To bring us right up to date, there is a growing body of evidence that geomagnetic field changes and sunspot maxima affect biological systems, and increasing psychological and biological evidence that the sun’s illumination of the moon affects human behaviour and mood. There are also electromagnetic theories of human consciousness – that consciousness is an electromagnetic phenomenon. However, these are areas in which there is as yet no overall scientific consensus.
Here is a visual of the correlation between moon phase extremes and the S&P500 in 2010-2011:
This article continues in a 26page PDF file (2meg) direct download from the Market Oracle website (will remain available until at least end of March 2012).
John Hampson, UK / Self-taught global macro trader since 2004
www.solarcycles.net (formerly Amalgamator.co.uk) / Predicting The Financial Markets With The Sun
© 2011 Copyright John Hampson – All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2012 http://www.MarketOracle.co.uk – The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
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