10 Market Superstitions

Most investors and analysts believe that investigating a company's financials and keeping a close eye on economic indicators are the best ways create a wise investment strategy. Others say that beating the market every time is nearly impossible, and for that reason diversification is key. However, still others believe that there is more at play than just market forces on Wall Street. While some call them silly superstitions, others subscribe to coincidental theories that suggest that certain events influence the direction of the market. With very few accurate ways to beat the market out there right now, market superstitions can be appealing. Here's a look at some of the stock market's oldest superstitions.

When the Presidential election season begins, the stock market always becomes a hot topic. Republicans and Democrats often argue that the market's future performance will depend on which party comes into power. However, no one has been able to produce significant data that proves which party supports the bulls. Despite that the Presidential elections are still rumored to have an impact on the direction of the market. Another

created by Yale Hirsch suggests that it doesn't matter who is elected; the market is bound to sink in the year following an election. Hirsch said that the first year with a new administration will always bring stocks lower, but the following year the markets will recover. Although data through the mid 1900's supported Hirsch's theory, more recent presidencies have shown that the election cycle theory to be false. President Bush's first year saw markets gain 25.2 percent and both of Clinton's terms yielded gains in the first year after his election as well.

The Skyscraper Curse is a

that predicts an economic downturn following the completion of a large-scale building project. The correlation was first discovered by Christofer Rathke who noticed that Japan's economy sunk shortly after several huge building projects were carried out. Upon further investigation, he realized that bull markets always led up to the construction of major monuments and soon after their openings economic conditions worsened. The theory was later developed to show several cases of the Skyscraper Curse. The Empire State Building was constructed just before the 1929 market crash and the building opened as the Great Depression begun. The World Trade Center and the Sears Tower all opened in the early 70's just as the US entered a period of rising unemployment and inflation. In 1998 when the Petronas Towers opened in Malaysia, the theory held true when the Asia Financial crisis took hold of the region.

It may seem unlikely, but some financial analysts say that there is a correlation between the fashion trends of the decade and market performance. The

says that as women's hemlines rise, so does the market. The connection between the amount of skin women are showing and the economy's performance was discovered by George Taylor in the 1920's. At the time, it was believed that women were more willing to raise their hemlines when the economy was doing well to show off their silk stockings, however when times were tough, hemlines dropped as women could no longer afford the garments. Now, some say that the theory still holds true because designers are more likely to use less fabric during boom times as the cost of material is higher.

The

is one of the most popular market superstitions and usually makes its way to mainstream news outlets in February ahead of the big game. The theory says that if a team from the old AFL, or AFC division wins, the market will decline in the coming year. However, if a team from the old NFL, or NFC division, wins, the opposite will hold true. The correlation between the winning team and market conditions has a surprisingly impressive 80 percent accuracy rate, but analysts caution that just because there is a correlation it doesn't mean there is causation. In 2008 the New York Giants' win should have predicted a booming year for Wall Street, but instead the stock market crumbled and posted one of the largest losses since the Great Depression.

The October Effect is a market superstition that predicts a major decline in markets during the month of October. Because some of the largest historical market crashes took place during October, many investors have become wary of placing large bets during that month. The days leading up to the Great depression like Black Monday, Tuesday and Thursday all took place in October 1929 and in 1987 the Dow lost 22.6 percent in a single day on October 19. While there is no evidence showing that October is particularly unlucky, many believe that market moves caused by the October Effect are purely psychological. The stigma attached to speculating in October has spooked many investors and was famously

by Mark Twain in his 1894 novel

The Hindenburg Omen is a technical analysis

that many believe can be used predict a stock market crash. The theory has been credited to a mathematician called Jim Miekka who believed that monitoring the number of securities with new 52-week highs compared to those that form new 52-week lows can determine whether or not a crash is on the horizon. The theory says that when both figures are larger than 2.2 percent of the total number of issues that trade on a specific day, a decline is coming. While a high number of 52 week highs and lows can be a good way to get a gauge of market uncertainty, the Hindenburg Omen has been debated as a reliable indicator. However, many believe that the formula's success in predicting crashes make it a worthwhile way to stay ahead of the market.

Much like the Hindenburg Omen, the

is a way that analysts can use data patterns to predict whether or not a bull market is imminent. In order to determine whether the market is moving in favor of a particular stock, investors look to see if a security's short term moving average increases quickly and crosses over the same stock's long term moving average. The calculation can be done by comparing the 15 and 50-day moving averages or the 50 and 200 day moving averages. While analyzing moving averages are typically a good way to determine market direction, many believe that the Golden Cross calculation often creates a great deal of hype for investors and becomes a self-fulfilling prophecy rather than a good prediction method.

Some investors subscribe to a simple rhyming

warning them to "Sell in May and stay away." The theory, also known as the Halloween Indicator, suggests that growth from November to April is significantly stronger than in other months and advises investors to sell at the beginning of May and hold on to the cash to reinvest later at the end of October. For those who choose to follow this advice, there is some data that backs it up. Since 1950, the Dow Jones Industrial Average has posted an average return of just 0.3 percent during the six months from May to October, but from November to April, the average return is much higher at 7.5 percent. While there is some evidence to support the "Sell In May" adage, some argue that things like capital gains tax implications and transaction fees wipe out the benefits of such a strategy.