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Solar Cycles in the UK Stock Market
This article was written & published in October 2006
Many people aren't surprised by astrology's confirmation that life is fundamentally cyclic in nature, because they intuitively sense that their lives have rhythm - history repeats, and what goes around comes around.
Everyone knows that there are seasonal industries too, where the annual fluctuations follow a pattern rather than being random. Anyone who works in a public-facing role such as in a shop or call centre knows that busy periods ebb and flow, as the customers seem to flock in waves.
The stock market is no exception. It's well known among investors that there is an annual cycle in market movements.
The graph below is based on the UK stock market's FTSE 100 index data from 1984 to 2006. It shows the Sun's movement through the geocentric Zodiac, i.e. the one most usually used by UK astrologers. Note that the month labels are an approximation: the Sun spends the majority of the month in the Zodiac sign shown.
An example: the Sun's goes into Aries (at the left-hand side of the graph) on 20th March and stays there until around the 20th April, so April is shown next to Aries because for the majority of April the Sun is in that sign. The precise dates vary from year to year, and the graph shown is based on accurate astronomical data, rather than on a generalised calendar.
This graphs shows that there is some truth to the saying 'Sell in May and go away, don't come back 'til St Leger day' (St Leger day is in September). It also demonstrates that there is a rally around Christmas and New Year. According to the London Stock Exchange:
"...history teaches stock market prices rise from December 11 to January 5 80 percent of the time. It is a trend that has run for many decades.... Since 1982 the year-end bounce occurred in 20 of the last 23 years, an 87 percent success rate."
This does not, of course, constitute a trading strategy or trading advice; it would be completely foolish to buy or sell shares using this information alone.
Besides this annual cycle research shows that there is a biennial cycle. Instead of looking at one revolution of the Earth around the Sun, we're now looking at two revolutions:
This two-year cycle has a stronger correlation with the FTSE 100 than the one-year cycle. The graph for this double Solar cycle also shows that the 'Sell in May...' and year-end rally adages do in fact originate from people noticing the trends emerging in the markets.
London Stock Exchange - reference to the statistics of the year-end rally is here (NB Link opens in new window)
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