LunaticTrader

Investing with the Moon

Testing the Jupiter cycle in stocks

Posted by Danny on November 17, 2013

A reader mailed me, criticizing my recent post Questioning Financial Astrology , in which I pointed out the problems with using longer term cycles. He is convinced that Jupiter cycle does work in the market and pointed to a post by Raymond Merriman, in which the Jupiter cycle gets mentioned.

Quoting the relevant part:

Historically, bull markets in stocks have topped out when Jupiter transited between 23° Aries and 7° Taurus (May-July 2011, and then October 2011-March 2012), followed by at least 20% declines. In cases where Uranus and Pluto have been in hard aspects, the rallies continued until Jupiter reached the sector of 14-24° Gemini (August-October 2012, and then April-May 2013). If you look at the chart of the Dow Jones Industrial Average, you will see that the largest declines of the past three years did occur from peaks in those time bands. But none reached 20%, or even the 48% that would normally be expected, because of “… the largest financial markets intervention by any government in world history.”

I have nothing against Merriman, like most astrologers he is probably trying hard to make it work, but basically he is blaming QE for his Jupiter cycle not working as expected. I think it would be more useful to consider the possibility that this Jupiter cycle doesn’t work. After all, even the best of methods only work 60% of the time, and even the best market “gurus” have it right about 60% of the time, as you can see here.
So, Jupiter should be allowed some mishits as well, that’s OK. Trying to put blame on QE for some astrological cycle not working makes financial astrology look worse rather than better.

But let’s have a look at the mentioned Jupiter cycle. Is it true that bull markets have a historic tendency of topping out when Jupiter transits between 23° Aries and 7° Taurus, followed by at least 20% declines? (and “normally” 48% according to this article)?

Well, that’s fairly easy to test. I used Dow Jones data and looked for all the tops after at least 20% advances from a major low, and for bottoms after declines of 20% or more from previous peak. That’s the standard definition for bull and bear markets. This can be done easily with the so-called “zig-zag indicator”. Here is the list of all bull market tops with the corresponding geocentric longitude (0 – 360) of Jupiter next to them:

Peak Date | Jupiter longitude
—————————–
* Jun 1901: 280
* Jan 1906: 56
* Nov 1909: 188
* Sep 1912: 247
* Nov 1916: 27 *
* Sep 1929: 75 *
* Sep 1932: 159
* Mar 1937: 290
* Nov 1938: 324
* May 1946: 198
* Nov 1961: 302
* Feb 1966: 81 *
* Dec 1968: 184
* Jan 1973: 293
* Sep 1976: 60
* Aug 1987: 29 *
* Jan 2000: 25 *
* Oct 2007: 257

We see a few tops falling within the sectors mentioned in the article (marked with a *), but 5 out of 18 is not statistically significant as that can easily be the result of normal random variation. These sectors appear to be just hand picked with the benefit of hindsight.

I also looked at the main bull market peaks in the 19th century, based on reconstructed monthly Dow Jones data, which is accurate enough for this test:

* Apr 1795: 303
* Oct 1800: 123
* Aug 1806: 268
* Feb 1810: 20
* Aug 1835: 99
* Dec 1852: 250
* Feb 1874: 181
* Jun 1881: 47
* May 1890: 311

None of the peaks fell in the mentioned sectors. A few are in the neighborhood, but that falls within normal expectation as well.
All we can conclude is that there is no evidence for a Jupiter cycle at work as far as these bull market peaks go.

If you randomly distribute 20 or 30 points on a circle then you will naturally get a few clusters where several points are close together. Here that’s the case in the sector 23 – 37 (23° Aries to 7° Taurus), but also at 180 – 190 (0° Libra to 10° Libra) and 300 – 324 (0° Aquarius to 24° Aquarius). That is no reason to expect a bull market peak whenever Jupiter transits these parts of the sky again.

Out of 20 observed Jupiter cycles since 1790, the market has peaked (and subsequently declined 20% or more) 3 times when Jupiter passed between 23° Aries and 7° Taurus, and another 2 times the market peaked when Jupiter crossed the sector of 14-24° Gemini. But that also means the market did not peak and decline on the other 15 occasions when Jupiter crossed that part of the sky.
That means QE is not to blame for this. The described Jupiter cycle has failed to produce expected bull market peaks on 15 earlier occasions, when there was no QE at all. It actually has only “worked” 5 times in 200 years.

It is what it is. I think financial astrologers would do well to start discarding the cycles that clearly do not work in the market, and then perhaps they will be left with a few things that do work. Finding an edge in cycles is never easy.

Good luck,
Danny

 

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2 Responses to “Testing the Jupiter cycle in stocks”

  1. bob collett said

    Hi Danny
    Interesting post.Merriman charges quite a lot to be right 5 out of 18 times.
    And your link to the Gurus is more food for thought. Their average is less than 50%.
    So flip a coin, and have a tight Stop when you are wrong, and you have a winning trading system. As for Robert Prechters 23%…..Elliot wave…..no comment.
    kind regards
    bob

    • Danny said

      That’s right. Maybe you have seen the random stocks experiment I have been doing for years. Just buying a randomly picked stock every month, and throw out the worst performing stock every month. It did slightly better than the market over a 3 years period without making any effort to try to predict where the market or stock was going.
      Buying stocks on the basis of astrology is probably no different from buying stocks randomly. If you use good money management it can do well. Half of the stocks you buy will do better than the market and after a while you can post a good looking list of all the great profitable trades you have done.
      Some of the random stocks in my portfolio were up 100% by the time I finished the experiment.

      Danny

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