It's been six months since the last installment of these articles, but during that time I've been doing quite a bit of very promising research. Oftentimes I get asked why I choose to share some of the timing tools I've developed. This is an especially popular question coming from novice traders in particular. Basically, the question goes something like "If this works, then why share? Why not just trade it and make millions?" I used to think along similar lines, until I discovered that the more I shared, the more I found. When I shared a little bit, I'd make some minor discovery. When I shared something bigger, I'd end up making a bigger discovery. In January, 2006, we had the Market Esoterica Seminar, where I basically gave away all the best stuff I'd collected over the years. A month after that seminar, I went into serious research mode and it still hasn't stopped coming in! So I apologize for not being able to keep these pages as up to date as I'd like, but I've had a good reason!
One of the areas of research I've been focusing in on has to do with polarity. There is a current running through markets, and it flips from positive polarity to negative polarity all the time. When it goes strong positive, we rally, and when it turns negative, we correct. I've come up with a few good methods to track the market's polarity, but one of the more interesting ones that I stumbled across was actually conceived of over 5000 years ago by sages in India.
Vedic astrology is extremely old, and has many interesting techniques that are very different from what we use in Western astrology. WD Gann spent time in India studying Vedic Astrology, and I'm sure some of this was incorporated into his trading approach. One technique that Vedic Astrologers have access to is called Ashtakvarga, which is a method for determining how strong or weak a particular planet is at a given moment. The technique entails taking the birth chart of a person (or market!) and running through various calculations to determine where in the zodiac a particular planet is strong and where it is weak. The idea is that if you have an aspect between two very strong planets, you'll get a strong result in the native's life, whereas if the planets are very weak and the aspect is hard, you'll get a very bad result. It explains why sometimes a good aspect can be very pronounced, while at other times it can fizzle all together.
When I came across this technique, I realized that this is a very ancient method for computing polarity. So, as is my usual custom, I programmed it and put it on a stock chart. Take a look:
This is a 10 year continuous chart of the SP. The blue line at the bottom is our Vedic Polarity calculation, based on the birthday of the SP, which I took as April 21, 1982. When the blue line is high, it means that the planets are positioned very auspiciously. If the blue line is very low, it means the planets are positioned very negatively. Take a look at the next chart:
In this chart, I've put green rectangles around the highest points in the polarity curve. These points represent times when the natal chart of the SP is being hit in a very beneficial way. I basically just scanned the curve and marked off the areas where the blue line was very high compared to it's regular level. The arrows on the chart show where these positive levels kicked in. What you can see is that when a strong positive polarity hits, the market rallies. The effect seems to last for about 3 months.
Here's a look at what happens in negative polarity situations:
In this case, I did the reverse. I highlighted the extremely low points on the polarity curve. These areas would traditionally be considered times of danger and hardship for the native. In this case, they correlate with corrective phases in the market. I've noticed that the timing isn't quite as exact as the bullish periods, and you can see points A, B, C, and D, where the signals were early by a couple months. Nonetheless, in all cases, we experienced corrections at, or shortly after, one of these very low points.
Next, let's combine both the positive and negative extreme points:
In this chart, we have both sides of the equation working together. I've added negative points at B and D, as I felt polarity should shift between positive and negative equally, and not just hit positively three times an a row at A, C, and E. B and D were just the lowest points in between A-C and C-E. They weren't quite low enough to make me box them in earlier, but should count when used in this method.
If we make the assumption that a positive polarity will hold until a negative polarity event occurs, and vice versa, we can create a trend indicator that will tell us which direction the polarity of the market is pointing at any time. To illustrate the results, I've drawn them in on the chart using trendlines. Basically, I drew a line moving up from positive to negative polarity situations, and down from negative to positive situations. This trend indicator is based entirely on time, and has nothing to do with price. So the place that I've drawn the lines in doesn't mean anything - I just tried to position it in the same frame as the price data. It's really the slope of the line that counts, and where it turns.
If you look at the chart, you'll see that this calculation, conceived of 5000 years ago, forecasts the general trend of the market better than pretty much any public advisory service you can subscribe to. Over the period that we're looking at, buy and hold would have netted us a gain of 445 points, an increase of 46% over the price level of 950 back in 1998. Simply buying and selling the close of the most extremely negative and positive bars on the Ashtakvarga graph netted 785 points in that same period, almost twice as much. That number took some hits due to the four early sell signals marked on that third chart, so the value would have been significantly higher with some basic technical entry and exit filters to help us fine tune our trades. It's not perfect, but it definitely works, and pretty well too!
Let's take a peek at the next couple years:
I wasn't sure if point A and B counted, as point B is not really as low as I'd like to see, but point A should qualify, and therefore B as well, as we want to alternate positive-negative-positive-negative, etc. September 24, and December 11 are the next dates up, and after that we've got April 2 and December 2, both in 2008. Whatever happens between now and then, Sept 07 and April 08 ought to be good times to go long, for at least 3 months at a time each.
This technique still needs some work, but you can see how well it catches the general long-term trend. As we are dealing directly with polarity itself, there is no such thing as inversions, which happens all the time to the cycle traders. I've only been playing with this for a week or so now, and still have to see if I'm using the correct birthday for the stock market. Other options may be the NYSE birthday in 1792, or possibly the the birth of America in 1776. After some rectification of that date, and some small technical tweaks, this promises to be quite an effective long term timing method. Those sages seem to know what they were doing. Thanks, guys! And to answer your questions ahead of time, yes, this will show up in a future build of Wave59. ;-)
Until the next time... Happy Trading!
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