Tomorrow’s Solar Eclipse and Its’ Impact on Markets
Tomorrow, August 21st, 2017, a solar eclipse will occur. The eclipse will be visible as a total eclipse by a band stretching across the USA from Oregon to South Carolina, and as a partial eclipse in the rest of the country and world.
Such an event usually brings me back to elementary school when we would typically get an extra recess to go out and watch it.
I have an insatiable curiosity about things that interest me The simple explanation behind a solar eclipse is fairly easy to grasp, even when you’re young; the moon is at an angle that sets it between the sun, such that the sun seems to blocked out (eclipsed, if you will) by it. Even studying physics in college doesn’t give you much more than that beyond the specific axial angles the occur at.
But after spending over a decade in financial markets and letting that curiosity remain insatiable, I’ve read and continue to read a great deal about the markets and things that influence it.
Now here’s where it gets weird…
The vast majority of financial writers and investors are quick to pass off the notion of such events as having any sort of impact on the markets as being ridiculous and purely pseudo-science.
But there are some well-recognized investors that take/have taken financial astrology seriously, with one of the most notable being W.D. Gann (listed as one of Investopedia’s Top 10 Most Famous Traders in the World).
Gann, in-fact had an entire section of his reading list for students that covered financial astrology.
Maybe it’s not so weird after all
Let’s think of it like this for a minute. The gravitational effects of the sun on the Earth are what keep it in its’ orbit. The power of the moon’s gravitational effects on the Earth are strong enough to create ocean waves.
We, despite our appearances, are composed of individual molecules (in-turn composed of individual atoms). The gravitational impact on atoms is widely accepted amongst the modern scientific community; depending on the size of the atoms and their proximity to each other, the larger body will pull on the smaller atoms.
I came here to learn about trading! What are you yapping about?
During a solar eclipse, the gravitational pull from other stellar bodies on every atom on our planet is impacted; if you think about it, there’s really no other alternatives.
Our bodies, including our brains, are therefore impacted by such lunar and solar events in some way. Typically the time leading up to an eclipse guides us towards a great deal of negative energy, which can cause the choices that we, our political leaders, as well as players in the market are making without us (or them) even being cognizant of our thought processes being altered.
And now the point.
Historically, solar eclipses have been correlated with periods of high volatility in the markets (up and down). This correlation is seen the week leading up to and after the week after the eclipse.
Well, last week, $VIX saw the first significant spike it’s seen in a while (roughly a week before tomorrow’s eclipse)..
The last solar eclipse visible from the USA was on May 20th, 2012…
And then before that, May 10th, 1994.
Ok! Ok! Enough charts!
There’s much more to the theory of solar eclipses and their impacts on markets. Not all eclipses are visible from every country and there’s talk about the impact being different based on which countries they are indeed visible from and the how this alters the impact. For an interesting read check out this little blog here.
The same site, in and attempt to prove the sanity of those who would believe such things is where I got the reading list from Gann that I posted above.
So What Does This Solar Eclipse Mean For Markets and Volatility?
Well, we’ve already seen what happens in the week leading up to solar eclipses with regards to $VIX; it ramps up. Typically, we see some chop in volatility the week after the eclipse, with it sometimes rising, but usually, the ramp resolves itself.
If recent history repeats itself, we should see the higher levels of volatility remain as the week starts, but then observe it start to trend downwards with a bit of chop as it resolves itself.
Will it happen? I have no idea, but I love looking at markets from novel ways and seeing what happens. I’ll write a follow-up article next week with what ended up happening.
Eclipse Date Source: https://www.wikiwand.com/en/List_of_solar_eclipses_visible_from_the_United_States