Cycles, from Z to A? Part II: Review of Manfred Zimmel's Astrology-based cycles thoughts at Amanita

Whilst looking for any updated information on the Bradley model that Manfred Zimmel posts at his Amanita Market Forecasting website, I didn't find anything new about Bradley but did find an interesting article he wrote back in February, about what's to come during this year (2009) and years ahead. Zimmel's methods use Astrological cycles (hence my "Z to A" little joke). Here are some quotes from that article, "The year of Mars and of the Ox in Chinese astrology: what to expect for the stock markets in 2009?" by Manfred Zimmel (Feb. 6, 2009). These are just a few quotes - you can read the full article (with charts) at http://www.amanita.at/Interessantes/Artikel/detail.php?id=1584:

1/1/09 marked the beginning of a Mars year in Western astrology and of a '9'-year in the decennial cycle, and on 1/26/09 the Year of the Ox started according to Chinese astrology. In this article I want to present a little empirical study that examines the performance of these 3 cycles in terms of Dow Jones data of the past 100+ years and suggest some future projections:

1. decennial cycle (10 years): derived from the last digit of the year
2. planetary cycle (7 years): each year is ruled by one of the 7 classical planets (Sun, Moon, Mercury, Venus, Mars, Jupiter, and Saturn)
3. Chinese year cycle (12 years): each year is ruled by one of the 12 Chinese signs

1. decennial cycle (10 years): amplitude around 35%
The decennial cycle is the best-known cycle. As a matter of fact there are huge differences in the average performance of a year: ranging from almost +30% in a '5'-year (such as 2005, 1995) to a loss of more than -5% in '0'-years (such as 2000), which translates into an amplitude of some 35% (chart from Alan Newman 1881-2007, N=127).
You may speculate about the background of this cycle. One reason could be that the Jewish calendar for most of the year has the same last digit as the Gregorian calendar (the Jewish New Year in September is Rosh Hashanah http://en.wikipedia.org/wiki/Rosh_Hashanah). The Jewish religion is very numerologically oriented. Especially ahead of the holy '7'-year (the number 7 is by far the most often cited in bible, almost 1000 times) one shall remain 'pure', also in the sense of being unpropertied (or ascetic). A well-known cycle is the jubilee year every 7 x 7 = 49 years, where the financial system should be reset, so to say. A confirmation is that the '8'-year is the 2nd best, the religious folks can buy again... Since 9/30/2008 we are in the year 5769, and 5770 starts on 9/19/09. 5770 is quite interesting because it contains the holy 7 twice. The 0-years do have a special meaning, too.

2. planetary cycle (length: 7 years): amplitude 23%
According to Chaldean astrology, each year is ruled by one of the 7 visible planets, 2009 is the year of Mars:
2003 Sun
2004 Venus
2005 Mercury
2006 Moon
2007 Saturn
2008 Jupiter
2009 Mars
As the diagram below shows [see chart in full article], a remarkable imbalance between the different years can be observed:
....
The very positive influence of the Sun is well-known at least since the extensive analysis of 26 stock exchanges around the globe by professor David Hirshleifer from the University of California at Irvine: the annualized rise on sunny days is 25% and just 9% if the weather cloudy (http://www.nypost.com/seven/12042007/business/sunny_days_shine_on_marts__study_702090.htm). The sun stands for good mood and thus for optimism and rising markets. The Moon is the sun of the night and rules the sign Cancer which is, according to different empirical studies, associated with success and growth. Sun and Moon alone account for three quarters of all profits of all 7 years.

It's no surprise Mars and Saturn as the classic malefics are bearish. We had 10 bear market lows since 1962: 10/1966, 5/1970, 12/1974, 3/1980, 8/1982, 10/1987, 10/1990, 12/1994 (USA) - 3/1995 (Europe), 10/1998, 10/2002 (USA) - 3/2003 (Europe). Interestingly, the 6 Mars years since 1962 explain 7 of the 10 bear market lows in this time frame. With the exception of 1981, the Mars year or the quarter before always nailed the low. Most bear market lows are ending in fall:

Mars year 2002 -> bear market bottom 10/2002
Mars year 1995 -> bear market bottom 12/1994 (USA) - 3/1995 (Europe)
Mars year 1988 -> bear market bottom 10/1987
Mars year 1981 -> bear market bottom 3/1980 (bear market bottom 8/1982)
Mars year 1974 -> bear market bottom 12/1974
Mars year 1967 -> bear market bottom 10/1966

Before 1962 the pattern worked, too, although the Mars year not always marked the end of a full bear market (20-30% decline) but twice only a decline of 14-15%:
Mars year 1960 -> low 9/1960 (decline -15%)
Mars year 1953 -> low 9/1953 (decline -14%)
Mars year 1946 -> bear market bottom10/1946
Mars year 1939 -> bear market bottom 9/1939
Mars year 1932 -> bear market bottom 7/1932

According to the Mars cycle, the 4th quarter 2008 and the year 2009 should mark a bear market low, the 11/21/2008 low in the US resp. the January 2009 bottom in Europe (EuroStoxx) do already fit the pattern (the 2nd natural focus would be fall 2009). Mars is the planet of war and sharp moves, so theory and expectation do fit will very well because the sharpest moves in the stock markets are almost always in the very last stage of a bear market and the very first stage of a bull market.
However, the traditional Jupiter and Venus performing so bad is hardly explainable and not in accordance with astrological theory.

3. Chinese zodiac cycle (length: 12 years): amplitude 22%
The Chinese years (N=108) are also distributed very unevenly (pictures from http://www.chinaseite.de/china-kultur/chinesische-astrologie/chinesisches-horoskop/chinesische-tierkreiszeichen.html):

Is that in accordance with theory? Yes quite well:
#1 rabbit (element: wood): The rabbit is breeding fastest of all 12 animals, it is a universal fertility symbol.
#2 pig (element: water): The pig has a very positive meaning, too, in Europe a New Year gift that should bring good luck is a small pig (made of chocolate or plastic, for instance). Another symbol representing luck is the fly agaric, which is called „amanita muscaria" in Latin and the origin of the name "Amanita Market Forecasting".
#3 dragon (element: wood): In China the dragon is a symbol for luck similar to the pig in the West. Dragon years are considered to be beneficial for marriages and births in China.

It's no coincidence that the 3 weakest signs are the 3 fire signs: sheep, horse, and snake. Fire is destructive in Chinese tradition. Good times are stabilizing a situation while bad times are catalysts of change, change & transformation are another meaning of the element fire. At the very bottom of the hierarchy is the snake: of the 12 animals, the snake is the least liked and most feared, as well as bear markets and bad times. On the other hand, 2 of the 3 best signs (rabbit and dragon) belong to the element wood which stands for dynamic rise and growth.

[Note, rather than copy all the details he writes about the Chinese cycle here, I'll place the additional detail about it a bit later today into a post over at my Tao of Trading blogspot. I may also add an additional post at this blogspot at a later date, focusing more on just this cycle.]
....

Deriving a simple model
With an amplitude (difference between the best and worst year) of 22-23% the 12-year Chinese cycle and the 7-year planetary cycle are somewhat weaker than the 10-year decade cycle (amplitude 35%) but much stronger than the 4-year election cycle (amplitude only 6%).

....
I'd like to suggest a simple model, with 3 factors ranked in order of importance:

1. decennial cycle amplitude 35%
2. planetary cycle amplitude 23%
3. Chinese cycle amplitude 22%

Because N=15 for a planetary year is much larger than N=9 per Chinese year, the planetary cycle is much larger and weighted higher. The larger N, the smaller the statistical variation is on average, still statistical variance is much larger in the planetary cycle.
Unfortunately, this simple model for 2009-14 consisting of 3 factors only allows a crystal-clear message for 2014 where all 3 factors are in the bearish camp. 2011 (bearish) and 2012 (bullish) have a visible but weak tendency. The next two years (2009, 2010) as well as 2013 are too contradictory in order to derive a reliable tendency. Models should primarily used when they have a clear direction but forget them when the message is mixed.

2009: no direction (average, mixed)
1 '9' year: rather strong, above average (#3 of 10)
2. Mars year: rather weak (#5 of 7)
3. Ox year: +5% average or rather weak (#7 of 12)

2010: no direction (average, mixed)
1. '0' year: the weakest year of all (#10 of 10)
2. Sun year: by far the best year of all (#1 of 7)
3. Tiger year: +2% rather weak (#9 of 12)

2011: rather bearish
1. '1' year: rather weak (#8 of 10)
2. Venus year: very weak (#6 of 7)
3. Rabbit year: +22%, by far the best year (#1 of 12)

2012: rather bullish
1. '2' year: average to below average (#7 of 10)
2. Mercury year: average to above average (#3 of 7)
3. Dragon year: good year (#3 of 12)

2013: no direction (mixed, average)
1. '3' year: average (#5 of 10)
2. Moon year: very good (#2 of 7)
3. Snake year: the worst year of all (#12 of 12)

2014: bearish
1. '4' year: average (#4 of 10)
2. Saturn year: average to weak (#4 of 7)
3. Horse year: the 2nd worst year of all (#11 of 12)

Thanks to Chris Wainwright for the calculations.

Disclaimer
The opinions and forecasts provided have been researched to the best of my knowledge but are by no means a solicitation to buy or sell stocks or other securities. I do not guarantee the accuracy, adequacy, or completeness of any information and I am not responsible for any errors or omissions. Past performance does not guarantee future performance. All transactions in the financial markets are risky. Any liability for losses or damages is excluded.

By quoting his article here, I'm not intending to endorse the analysis or Zimmel's conclusions. I do see that Zimmel is posting at his website, some predictions of a coming huge bull market. But when?? Have "the lows" been finished? I do not know what Zimmel's suggested time frame is - makes a big difference! So, while I can see some potential for that, I'm don't know what timing he has in mind! From his February article quoted above, it doesn't sound like he thinks it's just around the corner. So please be aware, I'm just posting his article to help readers know more about how some cycles methods work - nothing more at this point.

There are other cycles methods, and this is just the second post this weekend reviewing different types of cycles methods. I'm offering these to help readers know more about cycles analysis in general, and more information on particular methods. So my readers can be the judge of what you find interesting and useful. If and when I've got particular comments to add about any of the cycles methods, I'll include those as well.