The reason why the stock market has had such a strong lunar connection is that emotions are running high now for investors, who have been rocked over the past several months by a series of domestic and geopolitical shocks.
In such cases, Montgomery argues, the moon can be a very strong predictor for how investors will behave and thus how they will move the markets.
“Those non-skeptics who readily embrace lunar cycles must realize that this phenomenon has been working so precisely lately only because there currently is an unprecedented amount of fear and uncertainty with respect to the world’s investment markets,” he wrote recently in his newsletter.
“Under these conditions,” he continued, “the cerebral cortex cedes much behavioral control to the primitive basal ganglia—wherein neural voltages matter more than earnings and interest rates.”
The thinking, according to research published over the past several years at the University of Michigan and State University of New York at Buffalo, is that the 15 days closest to the new moon produce higher results than the rest of the month.
The notion that the moon can influence moods is not new, but it is a somewhat novel approach to investing. According to a New York Times report several years ago, the strategy works about 60 percent of the time though it is primarily a short-term trading tool rather than a benefit for longer-term investors.
Indeed, Montgomery acknowledges that it has limitations, particularly regarding the stock market.
“Usually (lunar cycles) show up fairly regularly in the commodities markets. In the stock and bond markets, they’re best just ignored. They’re just noise,” he said in an interview. “Occasionally, when the markets get very commoditized and they’re whipping around and are very highly emotional…there’s a lot of fear and everybody remembers 2008. In these highly emotional, irrational times in the marketplace, non-rational indicators start to show up in the price structure.”
At this point, Montgomery said the market should have topped on July 1 as it was a “Cycle Day.” But he said the recent proximity to another Cycle Day and improving technical signs indicate that any “sell-off from this point will be short-term only, leaving the June lows intact, and making new recovery highs in the weeks to come.”
Montgomery offers no long-term view but says the short-term outlook, based on the moon and other variables, appears, well, full.
“Sometimes the markets are earnings-driven, sometimes they’re interest rate-driven, and sometimes they’re emotionally driven,” he said. “That’s rare, but that’s when these cycles tend to be more help than usual.”
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