If you watched the news over the weekend, there was a total lunar eclipse on Saturday evening. 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!
This trading idea is also published over on LIM's market history research website, MarketHistory.com. You can see more details about this trading idea there.
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