Testing the Effect of the New Moon on the Market

■ Introduction

Efficiency testing is a method to measure the actual market behavior around a specific event. It
allows one to create a visual image to see trends before and after an event. By using efficiency
testing, one can grasp an intuitive understanding of the effect of an event on a market. Efficiency
tests are specific to the market tested. They can determine specific behaviors before or after an
event exactly by the day. In this chapter, an efficiency test will be analyzed for the Dow Jones
Industrial Average across the years 1885 to 2013.

■ Case Study: The Sun and the Moon

An efficiency test is a way to measure the actual behavior of the market before, during, and after a
transiting aspect. Efficiency testing is a critical first step to test the potential of a single aspect to
affect market price. It is important to note that efficiency testing is not a test of statistical
significance, but it will tell one the actual behavior of the market around a transit over a given
period of time. However, this is the first step in the process of determining whether an event is
significant.

When one applies large number of cycles to an efficiency test, the chances of the described
market behavior’s being correct are increased. Stability can be brought about by the use of a large
sample set. The law of large numbers states that if an event is performed over a long period of
time with a large number sample size, then the results become stable and reliable. The primary
question with efficiency tests is: how many cycles or samples are enough to make the results
stable? There is no clear‐cut answer. Optimally, one would like to have at least 10 to 15 cycles to
work with as a bare minimum. Some outer planets only make an aspect a handful of times over
the course of a century. So it is difficult to get a complete set of reoccurring data for the outer
planets.

Inner planets complete cycles on a much more frequent basis. The Moon is one of the shortest
cycles—about one month. This creates the potential for literally hundreds and potentially
thousands of samples to analyze. For example, if a researcher uses 500 cycles to show the market
rising with an efficiency of 60 percent of the time, the researcher can be confident that results are
stable and reliable
Next, to determine if the results are statistically significant, the researcher must compare these
results to a control. This control may be a series of randomized events over time, or one may use
the stock/market behavior as a control. Then the efficiency test results can be compared to the
control. This comparison must be run against a standardized curve such as a normal distribution or
a chi‐square to determine significance. For example, if the stock/market has a winning percentage
of 59 percent and the efficiency of the transit shows a rise 60 percent of the time, the results may
not be significant. This is because they both rose at roughly the same rate. A famous quote about
the market is “Don’t confuse brains with a bull market.” Another one states: “All boats rise with an
incoming tide.” This is important to remember when one is considering the significance of financial
cycles. If the cycle shows a high winning percentage during a rising market, the cycle may not be
significant at all. During a rising market, any randomly picked segments would be profitable. In this
scenario, it would be difficult to determine if there is a difference between the two. In contrast, if
the stock or market behavior has a return of 50 percent and the efficiency test shows a market rise
60 percent of the time, there is a difference between the two. Since there is a large difference,
there is a chance that the event is statistically significant.

There are multiple factors to consider in statistical analysis: sample size, choice of control,
standard deviation, and chosen distribution used to compare data to. It is important to note that
one can have a significant event even with a small sample size. The “catch” is that the difference
between the efficiency test event and the control must be very large to be significant for a small
sample size. For example, an efficiency result of 55 percent compared to a control of 50 percent
may be significant over 500 cycles. However, an efficiency result of 55 percent compared to a
control of 50 percent may not be significant for just 10 or 15 cycles. Therefore, when one is using a
small sample size, there usually must be a large difference between the two to be considered
significant.

The important component of the efficiency test is that it gives one a primary visual representation
of market behavior before and after an aspect. It is absolutely essential to view the data visually
first. By seeing trending events around a planetary aspect, one can determine how to set up the
research experiment.

The first step of the scientific process is observation. Then, a hypothesis can be formed. The
efficiency test is the first observation of the behavior of the market around a transit. Cycles are an
important starting point because they occur each month. This offers the advantage of a large
sample size to work with. In addition, the Sun‐Moon lunar cycle is very convenient because people
are familiar with the terms New Moon and Full Moon. People have observed over time that these
events tend to act as “magnets” for market turning points.

In the following section, efficiency tests will be performed for the Sun‐Moon lunar conjunction
known as the New Moon over various market periods. Typically, the New Moon marks significant
market bottoms since it is a conjunction (beginnings). The market behavior around the New Moon
will be analyzed across bull markets, lateral markets, and bear markets. It is important to analyze
the market during different periods because it is not always possible to beat the market using a
simple lunar efficiency test. It will be demonstrated that during bull markets the preferred
behavior is “buy and hold” over market timing. However, during lateral market or bear market
periods, it pays to time market bottoms around the New Moon. The software used to analyze
these data is Air Software Market Trader Titanium Plus

■ How an Efficiency Test Works

An efficiency test measures market behavior around an aspect. It shows the actual behavior of the
market day by day around the aspect. It is the observation step before a hypothesis can be
formulated. The efficiency test will measure two basic concepts. The first is the basic shape of the
market behavior around an aspect. From this one can grasp an intuitive vantage point of a market
behavior before, during, and after the culmination of the aspect.

The second concept it evaluates is the most efficient segment to trade around an aspect in terms
of profit and/or percent gain

This efficiency test for the Sun/Moon interaction will take place across all data points from 1885 to
the present using the Dow Jones Industrial Average. The law of large numbers will provide a stable
result. Then specific intervals will be analyzed as a formal “walkthrough.” This will verify the fractal
nature of the cycle. A fractal is a self-similar pattern that occurs across smaller and smaller
intervals. Each smaller period should exhibit a self‐similar fractal shape to the larger curve. Any
random cycle will produce an outcome over time that may appear to have meaning and
forecasting ability when it does not. Therefore, a cycle must be verified by analyzing smaller
subsets of the cycle. The verification of the strength of a cycle to forecast out into the future can
be completed by a procedure called a walkthrough. The walkthrough process will look for a similar
fractal structure of smaller time segments that agree with the larger segment. In other words,
each smaller cycle should look similar to the larger cycle. Thus, they will each have an improved
chance of predictive power over time. A walkthrough starts the cycle at various periods of time
and follows it forward. If the cycle maintains a similar shape and structural integrity across many
small intervals, then it walks through successfully across time. In other words, the walkthrough
verifies the integrity and repeatability of a cycle. This rules out a constantly morphing and
changing shape of a cycle.
■ Efficiency Test: Dow Jones Behavior around the New Moon from 1885 to 2013

This efficiency test will analyze the effects of the New Moon on the Dow Jones Industrial Average.
The following intervals will be analyzed: 1885–present, 1885–1900, 1900–1920, 1920–1940, 1940–
1960, 1960–1980, 1980–2000, and 2000–present.

Dow Jones Industrial Average: 1885–2013

Figure 8.1 shows the daily chart of the Dow Jones Industrial Average from 1885 to 2013. This is a
strong bull market period. Typically, during bull markets the buy and hold strategy is superior to
market timing.

Market Behavior around Transiting

Aspect The New Moon and the Full Moon are always topics of interest to study. One can easily
look up at the sky and see when the Moon is new or when the Moon is full. These Full Moon and
New Moon points tend to coincide with significant market turning points. This efficiency test
(Figure 8.2) will measure the effect of the New Moon, since market data from 1885 on the Dow
Jones Industrial Average shows a basic efficiency test graph. The efficiency test graph is displayed
with the “aspect of interest” in the center. This is labeled day 0 in the center of the graph. Then on
either side of the 0, there is a range before and after the transiting aspect. In this test it is listed as
+/– 15 days. The lunar cycle has a period of about 30 days. Therefore, the Full Moon and the New
Moon are spaced 15 days apart. The day 0 mark will represent the point of the New Moon, and
the outer edges represent the Full Moon.

Figure 8.2 shows the efficiency test results around the New Moon for all data on the Dow Jones
from 1885 to 2013. The efficiency test shows that the New Moon coincides with the market
bottom. This is exactly what a conjunction is supposed to mean: the beginning of a cycle. +15 days
after the New Moon the market peaks on the Full Moon. This is exactly what an opposition is
supposed to mean: the peak of a cycle. So right away upon the initial observation, one can see that
the market behavior matches the theoretical astrological meaning of the aspects.
In Table 8.1, one can see the analytics of the efficiency test. This diagram shows the transiting
aspect type, buy and sell days around the aspect, the type of trading strategy, and a preview of the
area of interest. In this case, the transit aspect is a “New Moon,” which is listed is as the Sun
conjunct the Moon. According to the efficiency test, the strongest period to trade around the new
moon is from –3 days before to +14 days after. The buy signal occurs 3 days before the New Moon
(–3). The sell signal occurs 14 days after the New Moon (+14). The strategy is a “long strategy,”
which is a bet that the market will rise in price. The preview window shows an arrow over the
period around the aspect where the efficiency is applied.

The chart shows the start and the finish dates on the efficiency tests. In this case the starting date
was February 16, 1885, and the finish date was February 26, 2013. Below the dates, the numbers
of winning and losing trades are listed. In this test there were 887 winning “up days” and 696
losing “down days.” This works out to 56 percent winning trades and 44 percent losing trades.
Below this, the largest winning and losing trades are listed. The largest winning trade is 27.9
percent and the largest losing trade is 32.2 percent.

The efficiency testing for this period reveals that there was a 56 percent chance of this being
profitable over 1,583 cycles. The largest winning trade during this period was 27.9 percent and the
largest losing trade 32.2 percent. If you invested $1,000 then your profit would have been $21,426
or 2,142 percent. The buy-and-hold strategy showed that if you invested $1,000 then your percent
profit would have been 45,074 percent. In this case the buy-and-hold was the best strategy by a
multiple of 22 times! The ratio of final balances shows how well the efficiency test performed
against the buy-and-hold. In this case the ratio was 0.05. This demonstrates that the efficiency test
generates only 0.05 or 5 percent of the final amount of the buy‐and‐hold strategy.

This reason that the buy‐and‐hold was superior is that this period was a bull market in stocks from
1885 to 2000. So the buy‐and‐hold was a very successful strategy looking back on the market. In
bull markets, the amount of time that one is on the markets should be maximized. However, this
lunar cycle strategy was only in the market for 17 days out the month or 57 percent of the time. In
this case, the “sitting out” period of the remaining 43 percent was missing out on potential profits
of the bull market. However, the lunar cycle becomes very useful during choppy market periods or
during bear markets. This will give you the large “chunk” of the profitable periods of the Moon.

■ Walk Forward Analysis

The efficiency test will now be performed for twelve time segments from 1895 to 2013. We know
that the market shows a bottom for the new moon and a peak for the full moon for all data.
However, to prove that this is a true pattern, it should appear in its general form across each time
interval for the entire 118-year period. In other words, it should be fractal in nature.

Walkthrough 1: 1895–1900

Dow Jones Bottoming Day Around New Moon: 1895–1900 This efficiency test shows an absolute
market bottom four days after the New Moon (Figure 8.3).
Walkthrough 2: 1900–1910

Dow Jones Bottoming Day Around New Moon: 1900–1910 This effi ciency test shows a local
market bottom three days before the New Moon (Figure 8.4 ).

Walkthrough 3: 1910–1920

Dow Jones Bottoming Day Around New Moon: 1910–1920 This effi ciency test shows an absolute
market bottom one day after the New Moon (Figure 8.5 ).
Walkthrough 4: 1920–1930

Dow Jones Bottoming Day Around New Moon: 1920–1930 This effi ciency test shows an absolute
bottom fi ve days after the New Moon (Figure 8.6 ).

Walkthrough 5: 1930–1940

Dow Jones Bottoming Day Around New Moon: 1930–1940 This effi ciency test shows an absolute
bottom four days after the New Moon (Figure 8.7 ).
Walkthrough 7: 1950–1960

Dow Jones Bottoming Day Around New Moon: 1950–1960 This effi ciency test shows an absolute
bottom one day before the New Moon (Figure 8.9 ).

Walkthrough 8: 1960–1970

Dow Jones Bottoming Day Around New Moon: 1960–1970 This effi ciency test shows an absolute
bottom four days before the New Moon (Figure 8.10 ).
Walkthrough 9: 1970–1980

Dow Jones Bottoming Day Around New Moon: 1970–1980 This effi ciency test shows a local
bottom three days before the New Moon (Figure 8.11 ). Note: This was a bear market and the role
of the conjunction and opposition became inverted. In a bear market, because the dominant trend
is down, the conjunction marks a top and an opposition marks a low.

Walkthrough 10: 1980–1990

Dow Jones Bottoming Day Around New Moon: 1980–1990 This effi ciency test shows an absolute
bottom three days before the New Moon (Figure 8.12 ).
Walkthrough 10: 1990–2000

Dow Jones Bottoming Day Around New Moon: 1990–2000 This effi ciency test shows an absolute
bottom one day before the New Moon (Figure 8.13 ).

Walkthrough 11: 2000–2005

Dow Jones Bottoming Day Around New Moon: 2000–2005 This effi ciency test shows an absolute
bottom one day before the New Moon (Figure 8.14 ).
Walkthrough 12: 2005–2013

Dow Jones Bottoming Day Around New Moon: 2005–2013 This effi ciency test shows an absolute
bottom six days before the New Moon (Figure 8.15 ).

New Moon effi ciency test Summary

Figure 8.16 shows the relative bottoming days of the Dow Jones Industrial average around the
New Moon, with a summary provided in Table 8.2 . The predominant feature of the New Moon
was a market bottom in all market conditions. This was the expected outcome based on the
expectation that a conjunction marks the beginning of a cycle. However, at times, the New Moon
fl ipped polarity and revealed more of an absolute high near the New Moon. These were periods
of bear markets. In a bear market, the predominant energy of motion is in the down direction.
Therefore, a new cycle of a conjunction begins at the top rather than the bottom. This occurred
during the 1970–1980 bear market and from the 2005–present period, which included the 2008–
2009 bear market. However, even with these aberrations, the predominant pattern is for the
market to show a bottom around the New Moon.
Summary

This chapter introduced the concept of the effi ciency test. An effi ciency test is a way to measure
the market movement around and aspect. A case study of an effi ciency test of the Dow Jones was
performed around a New Moon from 1885 to 2013. This effi ciency test revealed that a market
bottom occurs around a New Moon. The effi ciency test was broken up into approximately 10‐year
segments in a walkthrough. The walkthrough confi rmed that the bottom consistently appears
around the New Moon. However, bear markets may invert the polarity.