Chart of the week: do equinoxes really affect stock trends?
Savvy traders don’t discount evidence that shortening days cause market reversals, says our chartist.
21st September 2020 11:18
by John Burford from interactive investor
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Evidence that shortening or lengthening days cause market reversals is not discounted by savvy traders, according to our chartist.
It has long been observed that at or around the time of one of the two annual equinoxes, stock trends often reverse course.
At the equinox, the length of the day equals that of the night (12 hours each!) and essentially, the summer days turn into autumn nights, and vice versa, twice a year.
Using that analogy, it seems bull trends can turn into bear trends, as traders can flip their perceptions at such times.
And many old-time traders have taken advantage of that established fact. Of course, trends do not always change at such times, but smart traders always keep an eye out for likely trend reversals around March 22 and September 22 in each year.
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This is my chart of many of the equinox appearances since the year 2000 plotted against the S&P 500.
Source: interactive investor. Past performance is not a guide to future performance.
You will see 16 of the possible 40 settings of the equinox lie pretty accurately around a major trend reversal. The current Autumn E
equinox appears to coincide with a top. Very pretty.
And just as pretty was the Spring equinox on March 22 which coincided precisely with the huge corona crash low! Now that’s what I call a reversal, as markets have been in strong bull mode ever since – until very recently, of course.
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Here is the latest action showing the three latest equinoxes:
Source: interactive investor. Past performance is not a guide to future performance.
The wave five all-time high was made on 2 September as it touched and moved sharply down off the upper tramline and currently, the market is testing the lower one.
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A hard break down here would massively increase the odds that the 2 September high marked the high of the entire bull market in stocks going back a very long time.
So could the path of the earth around the sun tell us anything meaningful about the direction of shares? If history is any guide (and it should be), investors/traders would be wise not to dismiss this seemingly left-field proposition.
Monday flash: Shares are massively down across the board this morning – right on cue?
For more information about Tramline Traders, or to take a three-week free trial, go to www.tramlinetraders.com.
John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.
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