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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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Questioning financial astrology – part 2

Posted by Danny on October 31, 2013

To understand this article, please read Part 1, where it was explained how longer term astronomical cycles are very hard to test because we have only about 200 years of stock market history. Not only that, there are so many astronomical or astrological cycles to chose from that it is almost inevitable that there will be a few of them that seem to match historic stock market movements quite well. Correlation is not causation, so we cannot be confident that these observed long term patterns will recur.

But that doesn’t mean we have to give up on trying to find and use long term cycles. When different cycles/rhythms are at work simultaneously, then combined cycles may emerge. A well known example is the ocean tides. Both the moon and the sun have a significant gravitational pull on our planet and that results in tides. The tidal cycle is in harmony with both the solar and lunar cycle, but differs in length from both of them. We can also consider the example of a musician who strikes a chord on his guitar. He is hitting two or three different strings/tones at the same time, but what we hear is the combined tone. In the same way, if planets have an effect on stock prices they are likely to do so through some combined cycle.
And then all we need to do is find that combined cycle. Just like the captain of a ship only needs to know the tidal cycle to know when he can enter or leave the harbor. He doesn’t need to know the cycles of the constituent parts: the sun and the moon. In the same way, if we can find a combined cycle of planets that rhymes with the stock market then we don’t need to consider any individual planetary cycles of Mars, Jupiter, and so on..
This is the ancient idea of harmony of the spheres as proposed by Pythagoras.

All nice and good, but can we find such a combined cycle that may work in the stock market?
This is a matter of resonance, so we need to find a cycle that pulls in all or most of the planets at a harmonic multiple of their individual cycle lengths. Planets do indeed tend to resonate at harmonic frequencies, see: Orbital resonance
.

So let’s start with our nearest neighbors, Venus and Mars. Venus needs 224.7 days to orbit the Sun, while Mars has a cycle of 686.97 days. They conjunct each other every 333 days (heliocentric), but the more interesting period is 666 days, because then they return to the same part of the sky with only a small drift every 666 days. This is the combined cycle of Mars and Venus, and you may want to watch it. Look what happened 11 months ago and 22 months ago, and see if things repeat.
But it gets more interesting when we can include even more planets.

For example, if we consider 7 of these 666 day cycles, thus 666 weeks or 4666 days then we get this movement:
4666 / 224.7 = 20.765 cycles of Venus
4666 / 686.97 = 6.79 cycles of Mars
4666 / 365.256 = 12.775 cycles of Earth

Notice how we have very close to three quarters of a cycle in each of these cases. This means that now 3 planets, Venus, Earth and Mars return to the same relative constellation in the sky, but with a 90 degree drift every 666 weeks.

The 666 day frequency also has an interesting connection with the planet Jupiter. Jupiter orbits the Sun in 4332.59 days (11.86 years).
Dividing 4332.59 / 666 = 6.505
So two Jupiter orbits, 8666 days = 13 * 666 days

The implication is that by considering the 666 day and 666 week cycles you are basically using a combined cycle of Venus, Earth, Mars and Jupiter. That’s why some cultures considered the number 666 so significant.

In the same way we can also look at Saturn and beyond.
Saturn has an orbital period of 10759.22 days (29.46 years).
We get a resonance with the Jupiter cycle when we consider 3 cycles of Saturn:
3 * 10759.22 days = 32277.66 days
32277.66 / 4332.59 = 7.45 cycles of Jupiter.
So for every 3 cycles of Saturn we get very close to 7.5 cycles of Jupiter.
This is a 88.37 years period and it is also interesting for other reasons. It is almost exactly 8 sunspot cycles ( 11 years), and it also resonates quite closely with Uranus ( 84.3 years cycle) and the half cycle of Neptune ( 164.8 years). This could well be the longest combined cycle that has use in the stock market.

Is there is any evidence that these cycles are at work?
Well, I have looked into long term correlation on stock data going back to 1790, and for the 666 day cycle the result was negative. For the 666 week and 88.4 year cycles a positive but weak correlation is found. So, at best, these planetary cycles have weak effects that are easily overthrown by other factors.

In the case of the 88.4 year triple-Saturn cycle we also have some visual confirmation on a long term chart. This is the Dow Jones index since 1790 (click for larger image):

88 year triple Saturn

On a 200 year monthly chart we see two similar periods standing out: 1830-1840s and 1920-1930s. In both cases the market surged to a significant peak that would not be surpassed for more than 20 years, only to drop towards a 30 year low within years. If this has anything to do with the 88.4 year cycle, then look for a major peak within the next few years, followed by a massive crash that takes the market to 30 year lows. Based on the earlier major peaks in 1835 and 1929, we would expect this blow-off peak to occur between 2012 and 2017, followed by a major low in 2020-2022.
As we have only two observed cycles it remains to be seen whether this pattern will show up. But if it does we would get some nice confirmation for this 88 year cycle.

If 88.4 years is indeed a major wavelength in the stock market, then we would also expect so-called overtones or harmonics. Overtones occur for a number of reasons, and most typically they are integer multiples of the main frequency. For example if we divide 88.4 years by 5 we get 17.68 years. This could be the 17.6 year cycle that Kerry Balenthiran has proposed in his recent book. It is exactly 3/5th of the Saturn orbital period.

Another long term cycle that has been getting attention is Martin Armstrong‘s cycle of pi, 3140 days (8.6 years). This is a supercycle of Venus:
3140 / 224.7 = 13.974 cycles of Venus.
It is also quite close to 2/3rd of the 4666 day cycle.

Actually, if 3140 = 1000 * π (pi) , then 4666 = 1000 * δ , the first Feigenbaum constant, which is as important for chaos theory as pi is for geometry.

With that I will finish this exploration.

Here are the weak correlations found for the mentioned cycles, ranked best to worst (based on 200 years of monthly changes):

4666 day :   + 0.034
88.4 year: + 0.0339
17.6 year: + 0.0128
6280 day: + 0.0128
333 day: + 0.0067
666 day: – 0.008
3140 day: – 0.0307

 

Be well,

Danny

 

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Questioning financial astrology – part 1

Posted by Danny on October 10, 2013

From time to time I get questions whether I use other planetary cycles besides the moon. Astrologers tell me to watch out for the next opposition of Jupiter to Saturn, or warn me that Uranus will be going retrograde next week. What about the Bradley indicator? Or the solar cycle?

So let’s have a look at financial astrology and why I don’t use most of it.

The problem with most planetary cycles is a simple one: we don’t have enough stock market history to reliably test any cycles that are longer than a year. For example, the planet Jupiter takes about 11 years to complete one cycle around the sun. Since the start of the New York Stock Exchange the planet Jupiter has completed only about 20 cycles. How much statistical confidence can we have in whatever conclusions we might derive from these 20 observed cycles?
Maybe stocks have gone up when Jupiter was in Aries 14 times out of the observed 20. Should we then bet on the market going up again the next time Jupiter enters Aries?
Well, there are 12 different star signs, so it is completely normal that stocks will have been a bit more “lucky” when Jupiter was in one of those signs (could be in Aries or any other one). So, the answer is no because this can easily be the product of random chance.
Imagine you see a person toss a coin 10 times and get tails 7 times. Would you then bet that he will obtain tails again on his next try?

The statistical significance is just too weak when we have 20 or less observed cases.

But that’s not the only problem. Let’s say we continue to search and find some cycle that matches the stock market history in a way that is very unlikely to be the product of random variation, maybe at a 99% confidence level (see: p-value). That’s something we can use, right?
Well, not so fast.
We have now run into the “look-elsewhere effect“. We looked in all the different planets, we looked in combined cycles like Jupiter-Saturn conjunction cycle, we looked into different aspects, we looked into retrograde motion and heliocentric cycles, we looked into planetary nodes, and so on… until we found something that “worked”.
But if we look in a few hundred methods and cycles of different lengths it is completely normal to find a few that stand out at the 99% confidence level.
This is no different from continuing to toss coins until you manage to produce heads 7 times in a row. It will happen sooner or later.

So, apart from the problem that we don’t have enough market history to test most planetary cycles for stock market effects, we also have so many different astronomical cycles and astrological methods to test that we are guaranteed to find a few that seem to work very well over a given test period for a given financial instrument. Are we then looking at the hand of luck from the look-elsewhere effect, or is it a genuine market cycle?

In a second part I will present another take on long term planetary cycles, and a possible use.

Stay tuned,

Danny

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Will buyers appear?

Posted by Danny on March 18, 2013

Markets continued to march higher last week, but turned down on Friday, which was the first day of our lunar Red period.
It looks like there will be more selling today, as stock markets around the world react nervously to the news of the proposed bailout terms in Cyprus.
That story sets a precedent and could have long term consequences. Who will want to keep any serious money in euros in EU banks, after seeing what happens overnight to our friends in Cyprus?
This could create a sizable flow of funds out of Europe and into dollars, gold, international stocks, …

Let’s have a look at the Nasdaq (click for larger image):

Nasdaq

The Nasdaq has reached the 3250 target we set a few weeks ago, and is bumping into overhead resistance.
We put out the Sell signal on our Twitter account last Thursday: http://t.co/TcEMklydm8
I am planning on sharing important charts and buy or sell setups on Twitter from time to time, so feel welcome to follow our account if you want to receive them.

Where do we go next? A close below 3200 on Nasdaq would be a sign that the market has indeed turned down.
But it remains to be seen how many buyers emerge after we get a few down days. Plenty of investors have missed out on the rally and are still waiting for a good chance to get in. If they outnumber the selling from investors who decide to take profits, then the market could turn back up quickly.
For now, I would expect the market to drop to 3100 by April or May. But, we may not get that low if buyers appear quickly.

***

As chart of the week I want to take a look at gold stocks, XAU index (click for larger image):

gold stocks

Since we recommended to get out of gold in early February, gold stocks have taken a nosedive.
The arc formation shows the selling climax that has taken place.
Currently the XAU index seems to have found support around the 130 level, and downward pressure from the arc formation is behind us. Meanwhile the Earl2 indicator shows a broad bullish divergence and this means we can start doing some careful buying here. There could be one more leg down towards 120, so a good approach is to buy some now, and buy some more on the next pullback or on a break above 142.
I would look for XAU to rise to 175 once it gets back above 142. So, that’s a nice 30% upside potential.

Good luck,
Danny

 

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Long term outlook

Posted by Danny on February 11, 2013

Markets have continued to push upwards, and are now testing all time highs.
With a few more lunar Green period days to go, we could be recording new highs in the next couple of days, but time is starting to run out.
Let’s have a look at the S&P 500 index (click for larger image):

S&P 500

The ceiling of the upper trendline is around 1530 for the moment. We may or may not reach that level this week, but I think there will be another attempt in our next lunar Green period in early March.
For now we should concentrate on the upcoming Red period. I would look for a setback to 1500 or just below it.
A drop below 1470 would indicate that we have seen the highs for a while.
So, I would take some profits by mid-week, then buy back if the S&P is still above 1470 by the end of February.
Notice how my Earl2 indicator is starting to turn down (red arrow). This indicator is often early, so it’s not a reason to panic immediately, but generally we have to be very careful (by keeping tighter stops) when the orange line crosses below the red line.

***

Now that the markets we cover have reached important upside targets, it is a good moment to take a look at the longer term picture. Here are some long term charts for the Nasdaq Composite index.
First a weekly chart, showing the most recent years (click for larger image):

Nasdaq weekly

Since the early 2009 bottom, the Nasdaq price action has been contained under a large arc formation, with multiple touches. This indicates a gradually weakening momentum. The arc formation converges around 3300 by the end of the year. This tells us that the 3200-3300 area is going to offer tough resistance. It also means that the market will probably make some important breakout, up or down, before the end of 2013.

Now, let’s take a look at the monthly chart (click for large image):

Nasdaq monthly

The price scale is logarithmic in this chart (log scale is better for very long term charts). The arc we saw in the weekly chart is now visible as the blue ellipse. Major trendlines put things into context.
In 2008 the Nasdaq broke below a trendline that was in effect since the 1974 lows (not visible on this chart). The market came back to touch that line in 2010, but has not been able to get back above it.
We can now see why the 3200-3300 level is so important.
We may be in a uptrend channel since the 2002 lows, or in a ongoing downtrend since the 2000 peaks, in both cases the ceiling is currently positioned at 3300.
The 3300 number can also be obtained in a few other ways.
In 2002, the Nasdaq bottomed at 1108. In 2009, a major low was found at 1265.5
A doubling from the 2002 bottom is 2216 (2 x 1108). That level proved major resistance in 2004 and 2005, when it took 4 attempts and almost 2 years to finally break above that barrier.
A tripling from the 2002 bottom would now give us 3324 (3 x 1108).

The top in 2007 was at 2861, which was a fibonacci 2.618 times the 1108 low.
The low in 2009 was at 1265.5. Applying the same ratio gives us 3313 (2.618 x 1265.5).

We can see how 3300 is popping up in a number of ways.

What to expect if this level continues to be a tough nut to crack?
Then we would probably get a couple of pullbacks before finally making it above that level.
Here is another monthly chart, now in linear scale (click for larger image):

Nasdaq monthly linear

We see how the price action since 2004 is nicely contained in parallel channels.
A failure to get above 3300 would probably send us back to the support line of the middle trend channel, which is around 2800. In a worse case scenario the bottom trend line will come into play, where support would appear around 2100 (which would be a retest of the 2010 lows).

Time will tell when the Nasdaq breaks above 3300, but until that happens these charts can help us navigate the market.

Good luck.
Danny

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The road to 1600

Posted by Danny on January 28, 2013

Markets have continued to drift upwards, and the S&P 500 has now reached the 1500 level, reaching the target we set a while back.
How much is left in the tank here?
We may find out soon. A lunar Green period is about to start this week, and I think the market will use that to test how high it can go (for now).

Let’s have a look at the S&P 500 chart (click for larger image):

S&P500

We can see that there is more room to rise, but resistance from the overhead trendline can be expected around 1520. My Earl2 momentum indicator is still rising nicely, but starting to look rather extended. Meanwhile the shorter term Earl is showing some weakness already by not confirming the market top. I think the market will continue to push into the 1520 level, at least into February and maybe even into a March double top, but then we are going to get an inevitable pullback. If we do push above 1520, then I would look for a peak in March where the all time high in the S&P 500 and in the Dow Jones Industrials gets tested.
By the time my Earl2 indicator starts topping out, we should be reducing bullish positions.
You will hear about it on this blog.

I am almost ready with my Four Pillars Finance forecasts for 2013. Last year’s forecasts have panned out quite well.
So stay tuned for that.

Danny

 

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New highs

Posted by Danny on January 21, 2013

Stock markets have held steady, and several market indices have recorded all time highs.
Still, most retail investors and people in the street are nowhere near optimistic about the economy. And that probably means there is more upside action to come.
We have to bear in mind that the 2008 crisis and market decline is still not forgotten by most. After such a sharp decline, which shocked small investors, it usually takes many many years for these investors to come back. After the bottom in 1931, the market went up until 1937 even though the depression was ongoing.

Let’s have a look at the Nasdaq index (click for larger image):

Nasdaq

We have another week of lunar Red Period to go. The market is moving sideways, suggesting ongoing strength.
This market has been lagging several other indices because Apple shares, the largest component in the Nasdaq, have been declining. I think it will catch up and I would look for the Nasdaq to test and possibly exceed 3200 by early February.

***

Last week I gave some information about the solar cycle.
The complete article is now ready and you are welcome to download it here (PDF file):
https://lunatictrader.com/?download=SolarCycles.pdf

Or read it in the Scribd frame below.
As always, your comments or questions are welcome.

Be well,
Danny

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