Over the last fifteen years of developing Market Analyst I have had the opportunity to meet so many different traders with many different ways of assessing what is happening in the market. Everyone is looking for something that will explain why the markets behave the way they do when they do and give themselves an advantage when trading.  

Whenever we study the market from a technical standpoint, there are times where our analysis works perfectly, every call is spot on.  Then comes the times where it stops working all together, the process that we were using so well for so long just does not work anymore.  It's like analysis techniques are seasonal, they work for defined period of time, then it's like they become the single worst thing you could do in the market.  It is the search for understanding why analysis seems to be seasonal that made me look to see what else could be effecting the markets.

Right from the start of building Market Analyst my mantra has always been that I was not the trading expert but rather my expertise lay in being the engineer behind Market Analyst and all the tools that were developed.  With this in mind I was always open to any new idea that could be applied to the markets.  It always saddens me when I meet traders who are so fixated on their beliefs that they will not even consider that there can be more to what is going on beyond their understanding.

There have been some really interesting tools/systems that I have worked on, but I have to say that the one area that intrigues me the most is the Astronomical analysis.   I must say that this has been an interesting journey for me personally as I, like most people I meet, thought that there could not possibly be any correlation between the positions of the planets and the markets.  The idea that astronomical bodies could influence the decisions of rational people on earth was something that I thought was absurd. However, in listening to many people explain various theories to me, and seeing too many examples that I can not deny, I have reached the point where I would say that I know without a doubt that our markets correlate with astronomical phenomena. 

Why is the market affected by astronomical events?  I’m not sure that anyone can answer that fully (I have heard some amusing theories).  I rather deal with what I can measure and search for repeatable events that I can trade from.

There are many things around us that are based on Astronomical events:

* A day is a revolution of earth, a year is a cycle of earth around the sun.

* We plant crops based on seasons.

* Emergency Services often experience an increase in incidents during a full moon.

* Sun spots spewing out radiation cause problems with communications.

* Moon's gravity pulls our tides.

etc.  As much as we may not like it, we live on a tiny rock spinning in a huge galaxy that is all there for a reason.  If as a trader I can find a correlation that assists my trading then I will use it. 

Let me take a moment to explain why what Market Analyst does is Astronomy and not Astrology.  Astrology takes the position of planets, houses etc and interprets those into a theory on what will happen in the future.  Often based on an ancient perception on the malicious or beneficial "nature" of the event. Astronomy on the other hand takes the position of planets as empirical inputs and looks for statistical confirmation that there is a correlation between historical events and the observed changes in the market. There is a lot of overlap, but as an engineer, I have always struggled with anything that I could not explain in a scientific way and too many "Astrological" concepts were too subjective. 

Anyone who has been around the market for a period of time will tell you that the market moves in cycles. Bull runs always follow the Bears.  It is always the identification of what part of a cycle we are in and when the cycles change that has been the hard part.  Given that planets have fixed cycles and combinations of planets produce complex cycles, it makes an interesting study to see if correlations can be found with the complex cycles in finance markets.

Over the coming months, I want to write more about the different Astronomical tools that Market Analyst contains and how they can be used, but for this week I want to focus on what is possibly one of the most fascinating I have ever seen, Synodic Intervals.

To explain this we first need to take a step back and look at an Aspect.  An Aspect is simply the measure of the angle between two planets.  Well really it actually is when the angle reaches a defined size.  Huh??? Let me explain it this way.  If I want to know when two planets are 45deg apart then I say that I am looking for a 45deg (official term is Semi-Square) Aspect.  A lot of basic astronomical analysis centres on looking for correlation between aspects and the market.

In looking at Synodic Intervals, we are just interested in the angle between two planets.  What we are looking for is measuring a change in the angle between the two.  Have a look at figure 1, in it we see that the angle between Saturn and Jupiter is 30deg with Jupiter behind Saturn.

Figure 1. Jupiter trailing Saturn by 30deg

In the next image, figure 2, you will see that Jupiter is now 60deg ahead of Saturn.  So the change of the angle between the two is 90deg.  We call that change the Synodic Interval.

Figure 2. Jupiter leading Saturn by 60deg.

The Synodic Interval allows us to start our measurement at a major turning point, which we know was a significant moment in time since the market has had a major reversal, and then we are able to measure the Synodic Intervals from there and see when in the future those planets move by the interval we are looking for.

In the example above we used nice round numbers but frankly if we were doing that we could just as easily use the 30deg and 60deg Aspects tool and achieve the same result.  Where the power of this technique really comes to the fore is when you find a historical turning point in the market and then you calculate a synodic interval from that point.  So lets say that a major top in the market happened when Saturn and Jupiter were 13deg apart, we can then look for what might happen when they are move apart by a further 90deg.  What analysing historical events like this has shown me is that there are many instances where synodic intervals has given advance notice of a future change in the market.

There is another twist that needs to be considered when ever you work with any Astronomical tool from earth's perspective.  Every planet in our Solar System revolves around the Sun, so from the Sun's perspective they are all fairly consistent in their speed and trajectory.  However from the Earth's perspective there are times when planets appear to be moving in reverse, this is because earth is moving at a different speed and we are "overtaking" the planet.  We call this Retrograde motion. The image below shows the theory behind this.

Figure 3. Retrograde Motion.

When we consider Synodic Intervals from an Earth (Geo-centric) perspective, we need to decide are we going to measure every movement regardless of direction, summing both direct and retrograde motion, or are we just going to consider direct motion and ignore any retrograde periods.  Personally I have seen both work and it adds to the complex nature of this tool.  

In figure 4 you will see an example of one of the most amazing examples of Synodic Intervals I have ever seen.  The tool was started on the October 2007 all time high and we searched for Synodic Intervals of Jupiter and Saturn (including Retrograde motion from a Geocentric perspective).  Each blue line represents 30deg of synodic measure.  While all are interesting, the obvious stand out is that the 90deg interval falls within 2 days of the March 2009 market bottom.  Unfortunately I found this example after the March low, but I have been watching future dates carefully.

Figure 4. Example of Synodic Intervals on the Dow Jones.

All of this analysis is great and wonderful in hindsight, but how do you trade with it?  You may have an interval date coming up next week, what do you do?  I personally treat this type of analysis more as a bias then a definitive signal.  The first thing a budding Astronomical Trader needs to do is study history.  What has happened in the past? how many times did this work?  You must satisfy in your own mind that the technique has merit so that you can trade with confidence.  Then when a signal comes along, you trade with a bias.  If I think that the market is about to fall, I'll keep tight stops on any long positions and be on the look-out for short entries, but still maintaining my stops in case I am wrong.  The golden rule, which applies with any technical technique but is so rarely followed, is to accept that your analysis may not be complete and protect your capital.  In short protect your capital not your pride.  Always remember that you need a 100% profit to recoup a 50% loss.

Synodic Intervals is a fascinating tool, there are countless combinations of planets that you can explore to see if there are better combinations.  Don't limit your analysis to planets either, have a look at some of the major astroids and the Sun and the Moon.  Astronomical studies can take years but it is one of the areas that I have seen the most successful traders around the world use.  At Market Analyst we are always looking for better ways to help our clients in their research of all Technical Analysis and we have some exciting new tools to assist astronomical analysts which will be available towards the middle of 2011.

Stay Tuned!

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