Tuesday, July 10, 2012

SPX vs Sunspots & Solar Flux

The solar cycle and the sunspot cycle have been a source of major scientific interest since Sir William Herschel, in 1801, found a correlation between sunspot activity and terrestrial phenomena (find the daily sunspot-data since 1818 HERE).

A. L. Tchijevsky [see also HERE], a Russian professor of Astronomy and Biological Physics, was intrigued by the connection of human behavior to solar physics, and constructed an “Index of Mass Human Excitability”. He found that fully 80% of the most significant human events, mostly related to war and violence, occurred during the 5 years or so of maximum sunspot activity.

In 1965 Charles J. Collins presented his investigation on "The Effect of Sunspot Activity on the Stock Market" (reprinted in the March 1966 of the 'Cycles' Magazine; see also HERE). His theorem is (briefly stated) the following:

(1) It appears that an important market peak has been witnessed or directly anticipated when, in the course of each new sunspot cycle, the yearly mean of observed sunspot numbers has climbed above 50.
(2) In each solar cycle, the largest stock market decline, in terms of percentage drop, comes after the sunspot number, on an annual basis, has climbed above 50.


Looking at the above charts, a rather strong connection between major recessions and the peaks of the sunspot cycles seems to be obvious. There was one major exception, the last Great Depression, the bottom year of which (1933) can be seen in the trough between sunspot peaks. The next Great Depression may parallel this exception. 

The same chart shows that during a sunspot peak, the speculative bull-bubbles in stocks “break” and an economic recession begins fairly soon thereafter. This often leaves the stock prices headed down even while sunspots are still rising.

There is a strong parallel between recessions and the peaks. It has been consistent throughout
  most of the century with one notable exception. The bottom year of the Great Depression in 1932/33 was at the bottom of the sunspot cycle. The collapse of the stock market, however, paralleled right on the peak of the solar cycle in late 1929. Stock prices slid as sunspot numbers slid, and the economy wallowed as sunspot counts reached 0.