Can the Moon Decipher the Market?
Every month there’s a new moon that impacts our mood, and in turn, our money.
Thanks to dozens of recent sleep studies, it’s been scientifically proven that during a full moon, sleep quality in humans overtly decreases. We’re all just stardust, aren’t we? Fortunately, we can predict in advance when a full moon will be – it’s not like NASA goes outside and says “oh look, there’s a full moon tonight, what a pleasant surprise!” It happens every 29.5 days, whether we can see it from Earth or not. The Moon’s 8-part cycle goes like this: New Moon, Waxing Crescent, First Quarter, Waxing Gibbous, Full Moon, Waning Gibbous, Last Quarter, Waning Crescent, and then it repeats itself. We can predict accurate timing for lunar cycles up to 50 million years from now (but after that, accuracy decreases, so don’t plan your calendars too far in advance). If you want to get really meticulous about it, you can use the lunar calendar to make sure to go to sleep extra early the night before a busy day, or maybe not plan a big meeting first thing in the morning after a full moon – or, you could base your investment and trading practices around it.
According to that same study on sleep (linked above), conducted by a Swiss university on healthy, drug-free adults, “…around [the] full moon, electroencephalogram (EEG) delta activity during NREM [non-rapid eye movement] sleep, an indicator of deep sleep, decreased by 30%, time to fall asleep increased by 5 minutes, and EEG-assessed total sleep duration was reduced by 20 minutes.”¹ This data could be the difference between an average night’s sleep and a less-than-average one, which is something I can vouch for. Looking at my own personal data in the Sleep Cycle app, which I’ve used consistently for over a year, my sleep quality appears to quickly decline after every New Moon, veering back toward baseline as the sun begins to shine on our Moon once again.
So what does this mean for the stock market?
Let’s first consider that stock prices are all dependent on public perception of how the company’s doing – i.e. more (optimistic) buyers than (pessimistic) sellers, as discussed in my other article, [Mercury Retrograde vs. the Stock Market]. Thinking more abstractly, if you’re in a worse mood because of a poor night’s sleep due to an approaching full moon, as are many others, bearishness could reign over bullishness. Stock prices may not rise as predicted. Furthermore, studies corroborated by the Division of Sleep Medicine at Harvard Medical School show that cognitive functioning in the prefrontal cortex also decreases as sleep does. Would you feel more confident about buying a ton of shares while your logical reasoning capabilities were 5% less than normal, or while they’re at 100% (or more)? Sounds like a pessimistic moment to me. Other studies cite increased aggression after sleep loss, so that could mean more erratic investing habits, and a chaotic market. For these reasons, it makes sense to argue that the stock market is more volatile around the New Moon phase of the lunar cycle, in a bad way.
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The Lunatic Trader blog, created in 2009, keeps track of this phenomenon exactly. By looking at NASDAQ closing prices for the last 9 years, comparing those posted around the Full Moon (aka the “green period”) to those posted around the New Moon roughly 2 weeks later (the “red period”), the algorithm has discovered thus far that “the NASDAQ has gained a total of 6255 points in our lunar green periods, versus a cumulative gain of 692 points in the lunar red periods (when more weakness is expected).” That’s literally 9 times better, and probably explains why the Lunatic Trader encourages its readers to sell stocks after the green periods, and buy them after the red periods are over. Another study from 2003 had the same conclusion, though these researchers looked at 24 countries in addition to the U.S., proving Lunatic Trader’s point well before the blog was born. So, why exactly do markets perform worse during the days around the full moon? Do people just feel like shit because they aren’t sleeping as well, and act more bearish? Ironically, my sleep quality [above] reflects the exact pattern the Lunatic Trader follows, and is even represented by the same colors. I should probably avoid the subway during rush hour while I’m in the red…
It’s hard to say exactly how much sleep loss is statistically significant enough to affect an entire group’s moods, and subsequent decision-making processes when it comes to day-to-day investment or trading practices. Chances are that investors and trader’s awareness of the current lunar phase alone could be a placebo effect strong enough to tip the scale in either direction. If anyone can find a study exploring investment strategies based on sleep patterns as a reflection of lunar cycles, send it my way, because we’re interested.