Predictable Zones technique

Stable and non stable cycles

Very often astronomical cycles work for some definite period of time and do not work all other time. It seems being very important for equities market and less important for standard indexes. In other words, here we are talking about non stable cycles.

Below are examples of stable and non stable cycles.

 Look at this Annual cycle calculated for S&P500 index based on the price history data since 1950:

You can see the most typical Annual patterns here - spring rally (March-beginning of May), September drop, Christmas rally etc. There is some uncertainty from June - August; we can specify it as vacation period when the stock market does not receive certain signals.

Here is another example of Annual cycle calculated for well-known Apple computers; it is calculated using the last 12 years of its price history (symbol AAPL):

There is only one period - since the middle of October until the beginning of December - where the Annual cycle works in a certain way; outside this period this cycle is uncertain. We call these periods or zones when we are certain of the cycle's performance as predictable zones.

The main reason of this uncertainty is lack of long price history data for many stock shares, and we have to handle this situation somehow.

Technology

In this article the techniques will be explained that allow to work with non stable cycles. In practice this approach is especially important for making forecast models for the shares that have not long enough price history (less than 15 years), Indexes are usually more stable because they cover much more price history.

#1 Split criteria

As an example, I have downloaded the price history for the last 12 years, i.e. since 2001 (today is February 2013). And the composite diagram shows the averaged Annual movement for the last 12 years. To verify our Annual cycle, we divide our price history in three intervals: 2001 - 2005, 2005 - 2009 and 2009 - 2013. And we watch how this Annual cycle works on each of these three intervals. If some pattern is confirmed by all these intervals, we have a strong confirmation that this pattern is important. You can highlight a composite calculated for the period 2009 - 2013 this way:  

The same way you can browse the composite calculated for 2005 - 2009:

 and for the years 2001 - 2005:

Pay attention when all these composite diagrams red, purple and blue show the same price pattern. These periods are marked by red stripes:

#2 Highlight predictable zones on the projection line

You can highlight predictable zones, so these zones will be visible directly on the projection line. Set "Highlight predictable zones" ON, and projection line will look like this one:

#3 Highlight predictable zones on the composite chart

Another approach is to select predictable zones dragging the mouse over the composite chart. Thus you can specify predictable zones manually while dragging the mouse, these zones are highlighted by lemon bars:

The projection line covers the predictable periods only, all other time it is not displayed. Thus you can see the projection line for predictable zones and ignore all other information. Here we pay attention to the most important part of the Annual cycle where some certain price patterns are present and skip all other parts of the projection line where the forecasted price movement is not certain.

Example - Mercury phase cycle

The same manner you can analyze any astro cycle. Let's consider Mercury synodic cycle (Mercury-Earth helio) for Apple computers chart. This is the composite diagram for this cycle:

You see there two predictable periods. We recommend to smooth this chart clicking "+" button. It looks smoother now:

After highlighting these two predictable zones, you will get these projection lines for predictable zones:

We recommend to browse this chart to get some impression on how these predictable periods worked in the past:

Example - Moon cycle

Moon cycle for Apple computers looks this way:

Here the predictable zones cover the most part of the composite diagram, i.e. this cycle is stable. So you can use the projection line for the Moon cycle itself, without selecting some predictable zones.

Recommendations for Timing Solution users

To display all these cycles together, we recommend to use Composite Box module. To add any cycle into Composite Box, click "+" button:

In our example above, we have put into the Composite Box three cycles: Annual (red), Mercury synodic (blue) and Moon (green) cycles . Pay attention that the program sends into Composite Box the astyro cycle together with its selected predictable zones.

Now in Composite module disable all visible items except "Composite Terms":

This is how Main screen looks now:

You can see all Annual (red), Mercury synodic (blue) and Moon (green) cycles in the Main screen. 

Sergey Tarasov

February 3, 2013

Toronto, Canada