The College and NFL football season is upon us and once again the Las Vegas Nevada Casinos have brainstormed the best proposition bets for gaming. While the direct impact of this season on the financial markets cannot be understated this year on Monday August 21st we have a wild card shuffled into the deck. Ross Aldridge Consultants located in Las Vegas Nevada has reviewed the proposition wagers available and now a new and original opportunity has mysteriously appeared on various sports books wager boards.
Hold on to you betting slips! The latest proposition is that the Dow, S&P and Russell will have a 2.5 percent or greater decline in value from August 21, 2017 through August 25, 2017. If we can get this proposition on a teaser ticket the opposite would be an increase on these of .025 basis points for that week. In the mean time we asked a few of our contributors for their view of the effect of the upcoming solar eclipse that will be seen during this timeframe.
On August 21, 2017, a total solar eclipse will cross the United States on a 70-mile-wide ribbon of land stretching from Oregon to South Carolina. Throughout the rest of North America — and in parts of South America, Africa, Europe, and Asia — a partial eclipse will be visible. NASA, according to its Total Eclipse site, will be viewing the eclipse simultaneously from the ground and from the air.
"When the moon blocks out the sun during a total eclipse, those regions of Earth that are in the direct path of totality become dark as night for almost three minutes," Steve Clarke, director of the Heliophysics Division at NASA Headquarters in Washington, DC, said in a statement. "This will be one of the best-observed eclipses to date, and we plan to take advantage of this unique opportunity to learn as much as we can about the sun and its effects on Earth."
Might the upcoming total eclipse of the sun coincide with the bull market’s top?
In the “war” between Trump and the Democrats, the investigations connected to Russian tampering with the U.S. election will be unlikely to connect Trump directly to the hacking of the campaign. If they uncover his monetary dealings with Russia in past years, there will be evidence for this array of conflict of interests, but they are unlikely to be “impeachable” actions. The area that could get him in trouble would be “lying under oath” and we have yet to see this play out. The Democrats continually defeat themselves by avoiding what people want: jobs, health care, and getting people “out of the ditch”. They need new young people with vitality and passion, who are not elitists and banksters and who will reconnect the party with its populist roots. The coming full Solar Eclipse on Trump’s ascendant and Mars on August 21st will highlight his monumental narcissism, uncover his bad associates, and even expose a problem with his health. What may “undo” his presidency will be emerging problems with the economy that will show up between October and December. There will be another Solar Eclipse in February 2018 involving the USA Moon that is on President Trump’s Descendant. Certainly, this targets a crisis in leadership of significant proportions.
One of the more surprising events to exert an apparent influence on markets is the solar eclipse.
Since 1900, 15 total solar eclipses have been visible from American soil.
On the day of each eclipse, and on the day before, the average return of the Dow Jones index has been minus 0.3pc.
The average for the day after the eclipse has been 0.2pc.
Just 13pc of the days before an eclipse experienced a positive return, compared with 47pc for the day itself and 80pc on the day afterwards.
As the 15 examples go back to 1900, the results could be skewed by superstition and fear not present in the modern world.
Additionally, as the average profits on offer are so small, the benefit could be wiped out by the cost of trading.
I know, I know—many of you are wondering why this question is worth even asking. So before I tackle the question, you should know that there have been several academic studies that have found stock markets are indeed affected by astronomical (if not astrological) phenomena.
Here’s a quick sampling:
•“Good Day Sunshine: Stock Returns and the Weather” was conducted by David Hirshleifer of the University of California, Irvine, and Tyler Shumway of the University of Michigan. The researchers found that a country’s stock market performs significantly better on days when the sun is shining in the city of its leading stock exchange.
•“Are Investors Moonstruck? Lunar Phase and Stock Returns” was conducted by Lu Zheng of the University of California, Irvine; Kathy Yuan of the London School of Economics; and Qiaoquia Zhu of the Australian National University. The researchers found that “stock returns are lower on the days around a full moon than on the days around a new moon.”
•“Winter Blues: A SAD Market Cycle” was conducted by Mark Kamstra of York University; Lisa Kramer of the University of Toronto, and Maurice Levi of the University of British Columbia. They found that stock market returns in countries around the world are “significantly related to the amount of daylight through the fall and winter.”
The first step was to try correlating solar eclipses with major market turning points. I focused only on total solar eclipses as opposed to partial ones, and furthermore on just those that were visible within the United States. There were 13 that met the criteria. For stock-market turning points, I relied on the bull and bear market calendar maintained by Ned Davis Research.
I found little correlation. On no occasion did a total solar eclipse visible in the U.S. occur on the day of a major market turning point. The closest was the market bottom on Sept. 7, 1932, which came just a week following the eclipse on Aug. 31 of that year. But other eclipses haven’t occurred anywhere near as close to turning points. The eclipse on Jan. 24, 1925, for example, came in the middle of the great bull market of the 1920s; no major trend change was on even the distant horizon.
On average since 1900, 10 months have separated major market turning points and total solar eclipses that were visible within the U.S. But there was a huge range: The standard deviation of this spread between turning points and eclipses was 6.6 months, which means that—assuming the future is like the past—we can at the 95% confidence level say that the Aug. 21 eclipse will be followed by a bull market top within 23 months.
Doesn’t tell you much, does it?
Might it be that even though the major trend doesn’t change when there is a solar eclipse, the stock market performs better or worse than average? To check that possibility, I measured the Dow Jones Industrial Average’s returns over the week, month, quarter and year before and subsequent to each eclipse. Once again I came up empty.
That’s because there was a fairly even distribution between eclipses for which the stock market was followed by below-average returns and those for which there was above-average performance. The same was true for returns before those eclipses. My PC’s statistical software was unable to detect any unusual pattern in any of these returns.
The bottom line? It’s difficult to conclude from the history of past eclipses that the Aug. 21 eclipse this year will end up being particularly momentous for the stock market.
That doesn’t mean it won’t be momentous in other ways, however, according to Arch Crawford, editor of the Crawford Perspectives, who bases his market timing advice on both technical analysis and “planetary cycles.” In the most recent issue of his newsletter, he specifically mentions the Aug. 1, 2008, solar eclipse that was visible in Russia. Six days later that country went to war with Georgia, the former constituent republic of the U.S.S.R.
Crawford writes that, in the wake of the Aug. 21 eclipse this year, “hostile reactions will be immediate. Like it or not, historic events will ensue around this time, and most certainly involve the United States!”
He adds, however, that this hostility won’t spell the end of the bull market. He instead expects “a higher high after some further corrective action during this summer, perhaps around the December-January time frame.”
We are entering the first eclipse season of the year, so today I will share some research before we present our current interpretation of the market.
English: Total Solar eclipse 1999 in France. * Additional noise reduction performed by Diliff. Original image by Luc Viatour. Français : L’éclipse totale de soleil en 1999 faite en France. * Réduction du bruit réalisée par Diliff. Image d’origine Luc Viatour. (Photo credit: Wikipedia)
Upcoming lunar and solar eclipses are known in advance and sometimes announced in the news. And on astrology related sites you will usually find forecasts about the impending disasters that are going to hit us as a result of the next eclipse. Indeed, eclipses have had a bad reputation for centuries.
But it is also clear that we get a couple of eclipses every six months, usually in the form of a solar eclipse preceded or followed by a lunar eclipse. Obviously the world is not ending every six months.
So, how do eclipses influence the stock market? If they evoke fear in a lot of people, then we would expect some effect.
Well, I have looked into all eclipses going back to 1950, and how they have affected our lunar Red and Green periods in the stock market.
Solar eclipses always come within a lunar Green period, because solar eclipses always come on a new moon day. Lunar eclipses always happen on a full moon in the lunar Red periods coming before or after a Green period with a solar eclipse.
The result (based on over 130 eclipses in 60 years): solar eclipses have historically been very good for the stock market.
Investing in the eclipse Green periods has yielded and annualized 17% gain, vs 11% annualized for all Green periods. That’s significantly better than average.
Of course, that doesn’t mean the stock market never goes down in eclipse Green periods.
About one eclipse green period out of six has generated a decline of more than 2%. But once out of four it has produced a gain of over 2%, and in 10% of the cases it produced a better than 4% gain.
But that’s not the end of the story. I also looked in the Red periods that come before and after a solar eclipse. This are typically the periods that contain the lunar eclipses.
These Red periods have a negative expectation, especially the red period that comes before a solar eclipse. It doesn’t really matter whether the period gets a lunar eclipse or not, these periods have averaged an annualized loss of 8.5%.
Again, this doesn’t mean that every red period before a solar eclipse has been negative. In about 15% of the cases these periods have shown gains of over 2%.
But in 33% of these periods there has been a loss of over 2%, and in 20% of the cases the loss was over 5%.
So, fairly often these red periods have produced significant downturns in the market.
The red periods that come after a solar eclipse are less outstanding and have just a break-even expectation, they tend to go either way.
Bottom line: historically the most profitable strategy going into eclipses has been: go short in the Red period before a solar eclipse, and then go long in the ensuing Green period that contains the solar eclipse.
There will be a solar eclipse on May 10th. This means we are now starting the Red period that precedes this eclipse, the most dangerous type of Red period in the cycle. Given that the market has climbed to record highs, the setup for a sudden downturn is fully in place.
Let’s have a look at the current Nasdaq chart (click for larger image):
The Nasdaq is trying to follow the S&P with a break out to the upside. But there are warning signs. The Earl2 remains negative for the moment, but could turn into a buy if the market continues to go up from here. In the shorter term Earl we see a bearish divergence shaping up.
So, given the history of eclipse red periods, I have now sold almost all my stocks and bought some put options.
One doesn’t need to be fully invested in the market at all times. These eclipse red periods are the best time to stay away from the market, and if a downturn materializes then you can jump back in to benefit from the positive Green period that often comes with the solar eclipse.
In summary: Ross Aldridge Consultants have concluded that avoiding the proposition wagers are the smart play but lets put some funds into the Sin and Despair Stocks just to be safe. Maybe these related sector type stock derivatives are in order. Stocks related to Alcohol, Tobacco, Gaming, Firearms and Military Defense would be the sectors for play.
Disclosure: I am/we are long SKF, URRE, MSFT.