Free Market Commentary 10/17/07:
Bradley Siderograph 2008 and more

Most Bradley “fans” do overestimate the importance of the siderograph, in the Amanita forecasts it accounts for hardly more than 5%, there are a great many other (more) important factors. First I’d like to review the results of the standard model for the year 2007 (in the protected Amanita area there are more models and analyses on that topic):

 

(the charts are based on the calculations of the software „Market Trader“ by Alphee Lavoie)

Since May we have had only 2 reversals:

  1. 6/14/07: the benchmark S&P 500 (SPX) did set an intermediate-term top in the standard window +/- 4 calendar days (top intraday 6/15/07, close 6/18/07)

  2. 8/26/07: Neither in the normal (+/- 4 days) nor in the extended window (+/- 1 week) did we set a trend change of intermediate-term magnitude (= a high or low for 1-3 months), not even a good short-term reversal for weeks. Now I have to explain an interpretation concept that was first introduced in 2006 in the protected area: the big Bradley turns (1-4 each year, printed bold in the chart) often have to be interpreted with a larger time window, namely up to +/- 2 weeks. The most important low of 2007 was Thursday 8/16/07 which was 6-7 trading days away from Sunday 8/26/07. The siderograph is not sufficient as a stand-alone timing instrument for at least 2 reasons:
    (a) You need additional methods because the siderograph is only able to predict a part of the major stock market reversals (about half or less)
    (b) Even if the Bradley nails a stock market high or low, you still need further precision tools because a window of some weeks is simply too large. Claims of some Bradley “hobby analysts” that the turns are consistently correct to the day (= the Bradley date is also the peak or low date) are definitely wrong. Only mini-sized trends (lasting for days) are consistently reversed within a +/- 1 day window of the Bradley dates.

 

A good example to demonstrate the sometimes very large windows is the siderograph turn date 5/20/06, the key high 2006 in the equity market was formed May 5-10th which is (at least) 10 days from the Bradley date. Similarly, the Bradley point 11/28/06 roughly coincided with the key high of the 2nd half of the year on 12/15/06 but was off by more than 2 weeks.

 

After analyzing the past and clarifying some important interpretation rules I’d like to present the 2008 model now, the chart below shows December 2007 through January 2009:

 

The 3 most important (bold printed) turning points are:

 

Other turning points are:

 

Related information: the TAO Indicator by Richard Schulz

Based on the work of Donald Bradley, Richard Schulz (http://www.schulzonmarketcycles.com/newsletter) has developed the TAO indicator that - in contrast to the siderograph invented by Bradley – does predict the direction of the stock market (up or down) with a relatively high degree of statistical reliability (chance probability P<0.01%), i.e. not just turning points. A correlation of r=0.86 (r2=0.74) for the Russell 2000 is about the best you can expect from an isolated model.

The fact that the small cap index Russell 2000 is showing the best reaction doesn’t surprise me. On the one hand, the small caps are less distorted by the PPT (Plunge Protection Team) market manipulation that is primarily acting over the SP futures. On the other hand, the small caps are a preferred playground for small investors and thus react more to the changes in crowd sentiment; the big boys are often not allowed to be exposed much to the small issues. Now the explanations by Richard Schulz, somewhat modified by myself:

Stock prices and astrological aspects are two independent variables, which qualifies them for a Pearson product-moment correlation study. I have modified Bradley's work:

1) I use a specific, uniform aspectarian for each planetary aspect. It doesn't matter whether it's Venus trine Saturn or Mars trine Jupiter- both trines receive the same positive value. The aspectarian is based upon a scientific formulation which sums harmonics and creates a zeroed oscillator.

2) I weight the various planetary aspects with a factor between 0.00 and 1.00. Mars in aspect to Jupiter has much more quantitative influence than Venus in aspect to Pluto. These weights are also specific and quantified.

3) I mathematically sum these weighted totals twice each week.

4) Then I take these biweekly totals and apply mathematical moving averages and summations to them. The major end result is the TAO (technical aspect oscillator). As a psychological indicator, when the TAO is positive and rising, people’s attitudes and outlook are the most optimistic. When the TAO is negative and falling, the attitudes are the most negative.

5) I then correlate the stock indices with the TAO using the Pearson Product-Moment Correlation test. After this test is run, the result is the Pearson r, a value between –1.00 and +1.00. If the Pearson r is close to +1.00, then there is nearly a perfect correlation between the two variables. I get the following correlations for the TAO average (N=692): Dow Jones r=+0.73; S&P 500 r=+0.69, and Russell 2000 r=+0.86 (the quick TAO is considerably weaker). These Pearson r values are highly significant to a greater than 1 in 10,000 chance against being a random distribution. This demonstrates, mathematically, that it is very likely that the TAO is interrelated with stock market prices.

It is to be noted, however, that correlation is not causation. The correlation between the TAO and equity prices is just one useful observation among many. The stock market has, can and will move against the TAO for extended periods of time.

Current interpretation: the TAO is bullish from September through November 2007.