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Put On Your Crash Helmets

If you believe that lunar or solar cycles have any effect on the stock market, you might want to pay attention to this column. If not, you might find this column a little ... spacey.

Several years back, a cycle watcher named Steve Puetz attempted to see if eclipses and market crashes were somehow related. He studied eight of the greatest crashes in financial history, from the Holland Tulip Mania of 1637 to the Nikkei of 1990. He found that market crashes tend to occur near full moons, and that the greatest number of crashes start after the first full moon after a solar eclipse, when that full moon is also a lunar eclipse. Puetz found that all eight crashes occurred six days before to three days after a full moon that occurred within six weeks of a solar eclipse. The odds of that being a coincidence, Puetz calculated, are less than 1 in 127,000.

Puetz was not saying that so-called "Puetz windows" always lead to crashes, but that if a crash is going to occur, a Puetz window would be the likely time frame in which it would happen. Puetz windows tend to occur every year or two, while crashes are rare events.

The interesting thing about this summer is that two Puetz windows will occur very close to one another, according to cycle watcher Heinz Blasnik. The first window is June 21-July 5, and the second is July 30-August 7. If a significant top is going to occur in the market this summer, those are the likely windows, Blasnik says.

It is interesting to note that a Puetz window with a total lunar eclipse occurred from July 1-July 16 last year. July 17 turned out to be a major secondary top in the Nasdaq (4289), and the start of a sharp, 18% pullback in the index. However, the Nasdaq's relentless sell-off did not begin until the index marked a second, slightly lower top on September 1 at 4259. A second Puetz window, with a full moon that was not a lunar eclipse, occurred from July 31-August 15 last year.

Another Puetz window (albeit two days longer than the required six-week interval between solar eclipse and full moon) occurred in August-October 1998, right before the plunge to the lows of the Asian crisis. Others in January and July 1999 coincided with relatively mild pullbacks (10%-15% on the Nasdaq).

Whether lunar and solar cycles can affect individual or mass psychology is a subject that has been debated for centuries. Stock traders have long had a saying, "Sell the full moon, buy the new," and it is remarkable how often new and full moons can mark a turn in the market within a day or two.

Just looking at the last few years of data, a Puetz window appears to be most effective when it occurs against a backdrop of economic crisis or weakness. Given the difficult state of the economy and corporate earnings, the two Puetz windows this summer might be worth keeping an eye on.