The "red and green will-o'-the-wisps" in the first sentence of Circe seem to be electric traffic lights telling tram cars whether to stop or go, but Joyce's language makes them heralds to a place of witchery. Will-o'-the-wisps are ghostly lights that hover over swamps at night, constantly receding, drawing travelers into unseen dangers. In Goethe's Faust, one leads to a Witches' Sabbath.
In Hades, Bloom thinks of them in practical terms, as perhaps caused by off-gassing: "Will o' the wisp. Gas of graves." But Gifford observes that 'In folklore, the will-o'-the-wisp is considered ominous, often thought to be a soul rejected by hell and condemned to carry its own hellcoal on its wanderings." In the 21st scene of Part 1 of Faust, he notes, a will-o'-the-wisp "lights the way up the 'magic-mad' mountain as Faust and Mephistopheles make their way toward the Walpurgisnacht (Witches' Sabbath) assembly."
Walpurga's Night, celebrated in the Germanic countries on the night beginning May 1, is named after an early Christian saint. But German literature, in the centuries leading up to Goethe, depicted it as a night when witches and sorcerers convened, often on the boulders of a mountain called the Brocken, to commune with devils, practice orgiastic rites, and celebrate the coming of spring. People in Germany, Scandinavia, the Netherlands, and lands that were once part of Prussia still observe the holiday with eating, drinking, huge bonfires, and (sometimes) witch paraphernalia, in a spirit of carnival celebration.
It is probably significant that, in that 21st scene of the first part of Faust, Mephistopheles seeks to divert Faust's thoughts from the tragic fate of his lover Gretchen by introducing him to a beautiful and quite naked young witch, but Faust is pulled away from this sexual temptation by a vision of Gretchen. In Circe Bloom follows Stephen through the streets of Monto into a house of ill repute, and all the available female flesh on display turns Bloom's thoughts to Molly and the sexual preoccupations that complicate his relation with her.