Now that version 2 has been successfully released and things have calmed down a bit, it's the perfect time for another installation of these showcase articles. One complaint I get from a lot of new users (especially the ones who cancel their trials!) is that Wave59 can tend to be a little on the complicated side. After all, just last showcase issue, we were talking about locating turning points based on planetary vibration through hexagonal number charts! So this issue, I thought I'd focus on something much simpler.

I recently gave a talk to the Denver Trading Group about the Fibonacci Vortex. In this talk, we looked at many different confirming indicators that could be used with the vortex. One of the more interesting ones that we looked at was the declination of Mercury. As Mercury goes about it's business in it's orbit around the Sun, it moves vertically above and below the celestial equator. It's a natural cycle, and one that we can plot right onto our charts using Wave59:

This is a daily chart of MSFT, and the blue line is an overlay of Mercury's declination. You can see that it does a very good job of calling off turning points on the chart. I've added vertical red lines to help you see the correlation. Basically what happens is that the market tends to make a turning point around the same time that Mercury's declination does. On the chart above, the blue declination line made 4 tops and 4 bottoms, for a total of 8 turning points. Out of these 8 points, 7 correlated with turns in MSFT. I'm not counting direction here, just pure turning points. So if the declination line makes a top on a certain day, we're looking for the market to make a top or a bottom around that same day.

The markets don't always run on this cycle. Sometimes the declination cycle will be very strong and other times very weak. What will happen is that a market will lock onto the cycle, and it will be active for 6 months or so, and then it will fade away. So as traders, we need to watch for those times when the market starts locking into the Mercury cycle, and use it while it's hot. Here's a chart of GE:

Not that the cycle is not exact, but that it gives zones for a turn. So the turn forecast for December 2004 actually happened mid-November in GE. So in trading this cycle, we'd be alert as a zone approached, and would use our technical tools to nail down our entry.

Here's the current chart of the Dow Industrials:

You can see that this market has definitely been reacting with our declination cycle. The only turn that we missed was the low at the end of October, but we got everything else and only had one bad signal out of six. Note that we're approaching a new turning point zone now, with a second one closely after in mid-April. In trading these two zones, our strategy would require two things to take place. First, the market must make a clear move up or down into the zone. We're looking for a turning point, so the market must form one in the area. If we move sideways into a zone, it doesn't count. Next, we need technical confirmation of the potential turn.

So, for argument's sake, lets say that first turn came early and we just made a high. Then we'll look to drop into mid-April. If we start making a nice low there, we have a buy setup based on the declination cycle. The market moved down into the zone, giving us a potential bottom. The next step is that we need some technical confirmation of the low before we jump in. This means a 9-5 Count, momentum divergence, or even a moving average crossover. Since our zones can be a bit sloppy, we need these technical tools not only to confirm the trade, but to get us in at a good price.

Watching Mercury's declination is a very simple, yet powerful technique that will allow you to forecast turning points in the future. It's very easy to apply, and works on most stocks. If you trade on and end-of-day basis, take a look at this technique on your favorite markets. Just remember to use your confirming indicators and place your stops!

All for this issue. Happy Trading!


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