Hang around the investment advisory industry long enough and you’re bound to come across unorthodox, if not outright bizarre methodologies. The never-ending pursuit of alpha is quite understandable. Because the markets are a game of chance and probabilities, superior knowledge and insights can potentially lead to outsized profits.
Without sounding cynical, the markets require a healthy supply of winners and losers. As in our physical laws, the stock market does not create wealth; it merely facilitates the transfer of wealth from one party to another. Thus, while certain methodologies may initially appear outlandish and ridiculous, if the process works, that is all that matters.
Naturally, market traditionalists bound to their fundamental analyses dislike the imposition of what they deem experimental approaches (ie. technical analysis). But the suddenly popular concept that solar eclipses can predict stock market crashes is riling all members of the Wall Street machinery.
In ancient times, solar eclipses were blamed for a litany of societal, geopolitical, and even intergalactic woes. Even today, when we realize that an eclipse is scientifically nothing more than an astronomical alignment of planetary bodies, much mysticism surrounding the event still lingers.
On the August 21 Fox News broadcast of “Your World with Neil Cavuto,” the host anchor interviewed a guest analyst who claimed that bearish market cycles typically occur around solar eclipses. However, the analyst noted that not all astronomical alignments lead to changes in the markets. Specifically, a convergence of technical patterns and solar eclipses provide the most accurate warning of impending volatility.
The segment ended with a warning — in a few days, the broader U.S. markets could see softness in its price action up to October of this year. But after this period of bearishness abates, the analyst forecasts an extended, bullish rally.
Scientifically, it’s premature to say whether or not solar eclipses predict stock market crashes. Several bearish events, including the 1987 collapse, as well as the 2008 crisis, occurred shortly after an astronomical incident. But the existence of solar eclipses that did not “generate” stock market crashes renders these methodologies as mere coincidences — unless further evidence is forwarded.
On the flipside, it’s also important not to dismiss any methodology prematurely without fully confirming its worthlessness. Case in point is a fractal-analysis report issued in late 2013 that a market crash could occur later in 2014. The mainstream media dismissed these claims as fear-mongering.
But in the late summer and early fall of 2014, the Dow Jones did indeed endure a two pronounced periods of volatility!