Sun Spots To Cool Down The Markets?

It is rumored Wall Street will be developing a new futures contract on sun spots. Contracts can be purchased/sold on the daily & weekly numbers. This new financial product will open the door for institutional & retail traders to speculate on sun spots as well as serve as a host for a new wave of derivative products linked to the contracts.

“Just kidding folks, but you just never know these days.”


The blogger Lionhead does have point; you never know these days. And he’s being backed up by Wall Street veterans like Art Cashin. UBS‘ floor trader do not dismiss the theory about the sun spots’  influence on the financial markets. If it kicks in, it could be pretty cold out there.

“Sunspot activity perked up markedly last week. In fact, the numbers returned to almost normal levels. The sunspot numbers for February 4th through the 10th were: 11, 22, 30, 51, 71, 63 and 55. We haven’t seen a number as large as 71 since spring of 2006. To keep things in perspective, lets again review the average daily sunspot numbers in prior years. For the period from 1999 through 2009, the average daily sunspot numbers were 136.3; 173; 170.3; 176.6; 109.2; 68.6; 48.9; 26.1; 12.8; 4.7 and 5,” Art Cashin writes in market commentary issued via UBS Financial Services.

“Let’s not put away that sweater just yet.

Some have pointed at a correlation between sun spot numbers and the Volatility index (VIX) and a working paper by the FED studying their effect on stock market returns.

While this linkage in behavior might seem strange, there have been studies correlating weather, harvests and industrial output and recessions with sun spots.

Warren Buffett and his Berkshire Hataway has conducted surveys on the sun spots’ influence on the financial markets for many years in collaboration with NASA.

The chart below shows this correlation by overlaying recessions with the sun spot numbers/cycles. They indicate higher volatility (fear) preceding the recession. Thus, the concern for a possible double dip recession to begin this year.

(Sourse: Lionhead/Zero Hedge)

Further research into sun spots reveals we are in cycle 24. Cycles run for 11 years.

Here’s NASAs predicted upturn in this cycle (from January 2010) and the previous peak from 2000 wrapped in std deviation bands.

For more information on sun spots: NOAA / Space Weather Prediction Center.

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