Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
Why You Should NOT Sub4Sub Free Youtube Subscribers - YTpals, Subpals, SubmeNow Test Results - 23rd Feb 18
One Belt, One Road, One Direction for Precious Metals - 23rd Feb 18
Gold’s Curious Sentiment - 23rd Feb 18
Relationship Between Crude Oil and U.S. Dollar in February 2018 - 23rd Feb 18
Why The Next Oil Boom Will Be Fueled By Blockchain - 23rd Feb 18
Gold Bull and Bear Markets - 23rd Feb 18
Why Recent Lows Are Crucial for US Dollar - 23rd Feb 18
Will Bitcoin be Larger Than NEO in 2018? - 23rd Feb 18
Stock Market SPX Probable Pop-n-drop - 22nd Feb 18
Stocks Fail to Hold Gains, But Still No Correction - 22nd Feb 18
Why We Should Buy Essay - 22nd Feb 18
The Latest US Debt Blow - 22nd Feb 18
6 Tips For Seamless Business Foreign Exchange - 22nd Feb 18
How to Anticipate Stock Market Trend Changes - 21st Feb 18
Gold Miners’ Rally? What Rally? Watch Out for More Fake Moves! - 21st Feb 18
5 Big Drivers of Higher Inflation Rates Ahead - 21st Feb 18
Goofy Indictments Divert Attention from Criminal Abuses at the FBI and DOJ - 21st Feb 18
Bitcoin or British Pound ‘Pretty Much Failed’ As Currency? - 21st Feb 18
Stock Market Waiting for the Fed - 21st Feb 18
National Identity Demands Restrictive Immigration - 21st Feb 18
Best Opportunities for Freelance Technical Writing Jobs - 21st Feb 18
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Understanding Market Cycles to Improve Stock Market Trading

InvestorEducation / Cycles Analysis May 16, 2013 - 04:39 AM GMT

By: Sam_Chee_Kong

InvestorEducation

A cycle is a chain of events that repeats over time. The outcome might not be the same each time but the characteristics are quite similar. Take for example the four season weather. Each year we have spring, summer, autumn and winter. After winter we have spring again and the cycle of weather will begin anew itself again. However this year’s summer will not be the same as last summer as the temperature varies every year.

Cycle frequencies can both be short and long, it can last from minutes until thousands of years. Understanding long term cycles in stock market helps you determine the overall market trend and similarly short term cycles helps you determine your timing in the entry and exit points in the stock market. The following chart shows some short and long term cycles.


Perhaps one of the most extensive studies on cycles is done by Dr Raymond H. Wheeler, Chairman of the Department of Psychology, University of Kansas. He commissioned 200 researchers to work for 20 years to study the effect of weather on mankind and also cultural activities dated back to the dawn of civilization. Over 3000 years of weather pattern was studied and so was 20,000 pieces of art and literature. After the extensive study he concluded that there exists a 100 year climate cycle and phases that influence human behaviours. The different phases can be described as the following:

  1. Cold-Dry
  2. Warm-Wet
  3. Warm-Dry
  4. Cold-Wet

510 years World Dominance Cycle

According to his calculations we are now in the Warm-Wet phase and should last until 2100. Further to this he also discovered the 510 years world dominance cycle. His record dates back 3000 years during the Greek and Roman eras. The following are dates and events that took place since then.

  1. 570 BC - The Romans came to power after the Greeks collapsed
  2.   60 BC - The Romans weakened and gave rise to the emergence of Asian Power
  3. 450 AD - Asian Powers declined and gave rise to Charlemagne and Britain power
  4. 960 AD - Global power shifted back to Asia with the rise of Genghis and Kublai Khan.
  5. 1470 AD - Europeans at the forefront of global dominance. Spain and Portugal were at their height of power when their naval fleet reaches the four corners of the Earth. Later we also see the re-emergence of Britain and also other European powers like The Netherlands and Germany. The United States came into the scene at a much later stage when the Global Power is about to be shifted back to Asia.
  6. 1980 AD - As can be seen since 1980 the shift in the Global Power from West to East began once again. Since the 1980s we can see the re-emergence of Asian powers like China, Russia and India. So once again the balance of power will stay in the East for the next 510 years which will go right into the year 2490.

The above are extracts from Dr Raymond’s book called ‘The Big Book’ which contains most of his cycle studies. In it you will find that the 510 year ‘civilization cycle’ can further be broken down to three 170 year cycles which itself contained three 50-56 years cycles and so on. In other words there are cycles within a cycle. The most famous economic cycle is the Kondratieff Cycle (50-54 years). Kondratieff, a Russian economist whose cycle study is based on wholesale prices, interest rates, wage levels and production indexes from the period 1780 to 1920. In his paper titled ‘The Long Waves in Economic life’ he showed that there is an existence of a 48-60 years cycle in the overall economic activity in the Western world. The following chart shows the Kondratieff wave in action in the U.S Stock market.

Where are we now?

Historians have found that 50 years business cycle has already been in existence since the biblical days. In the Old Testament it did mentioned about farmland being lie fallow in the seventh year of cultivation. After a total of seven groups of these seven years (7x7 = 49 years) the land was to lie fallow two years in a row. The main question is where are we now in the Kondratieff cycle? From his study on economic cycles he found that the most valid recent peaks are occurring in 1814, 1865, 1929 and 1974s and the next peak will be around 2020s. The 50 years Kondratieff cycle can be classified by the following phases which are divided into five equal decades.

  1. First Decade – Recovery (1974-1984)
  2. Second Decade – Boom (1984 – 1994)
  3. Third Decade – Peak and Transition (1994 – 2004)
  4. Fourth Decade – Collapse (2004 – 2014)
  5. Fifth Decade – Trough and transition (2014 – 2024)

We reckoned that we are now in the fourth decade of the main cycle because currently global economies are engaging in competitive currency devaluations and also at the same time enacting protectionism policies. The following graph shows a more detailed succession of events leading to the current situation and also what to expect from now on.

Does a Stock Market Cycle exist?

Edward R Dewey can be considered the modern day authority in cycle studies. In his book ‘Cycles’ he documented his studies on cycles with data dating back to the 1830s. His book is considered the bible of cycle studies as to Benjamin Graham’s Security Analysis to Fundamental Analysis. What he found that the 9.2 or 9.225 years cycle to be exact is the most accurate of all. He estimated that there is only 1 in 5000 chance that the occurrences can be coincidental.

Then we have Veryl L. Dunbar in his 1947 article ‘The Bull Market’ printed in Barron’s June 1952 issue discovered the 46 month cycle. His analysis on cycles for the past 123 years yielded a 97% accuracy rate or predicted 62 out of the 64 cycle occurrences. John Hurst, another pioneer in cycle studies identified 12 dominant cycles existing in the stock market. Below we present to you a table of compilations of various cycles and different timeframes of the stock market that has existed and still valid till today although there might be some slight changes in the timeframes.

Years

Months

Weeks

Days

18

 

 

 

9

 

 

 

4.5

 

 

 

3

 

 

 

1.5

18

 

 

1

12

 

 

0.75

9

 

 

0.5

6

26

182

0.25

3

13

91

 

1.5

6.5

45.5

 

0.75

3.25

22.75

 

0.375

1.625

11.35

 

0.1875

0.8125

5.687

 

0.0937

0.4062

2.843

How cycles can assist you?

As a Stock Market investor would it be nice to add a tool to your arsenal that may help you to determine the general trend of the market and also to buy or sell before the market reverses. As you know Stock Market prices move in trends either up, down or sideways. For long term investors (defined as holding stocks more than 1 year), a solid knowledge of long term market trend or cycles is sufficient. This is also known as the Primary Trend in the Dow Theory. 

For medium term investors who are holding their portfolio between three weeks to a year, it will be advantageous to have some knowledge of the Secondary Trend or cycle. Secondary Trend refers to stock market trends that last between 3 weeks to a year. Lastly for short term investors who are likely to hold stocks for not more than 3 weeks again it will be advantageous to have some knowledge of the Minor Trend or cycle in the stock market. The following chart represents a cycle in the form of a sine wave. It also shows the different stages of market activity in one market cycle. During the trough stocks are accumulated and will be mark-up on the way up. At the peak stocks will be distributed and when done then it’s time to mark-down their prices and the cycle will begin anew again.

We will demonstrate to you using a live chart and that is the FBMKLCI. The following chart of the FBMKLCI clearly exhibits the existence of cycles. There are two cycles in existence and the first is between October 2012 and December 2012 while the second starts from the beginning of December 2012 to Mid February 2013.

If you have bought during the first low during the end of November 2012 and also the second low in mid February 2013, we are confident that your investments will performed much better than other times during those periods. So we hope that by now you should realised that with a clear understanding on market cycles and trends it will certainly help you make better informed decisions in your stock market investments./

by Sam Chee Kong

Samcheekong.blogspot.com

cheekongsam@yahoo.com

    © 2013 Copyright  Sam Chee Kong - All Rights Reserved

    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules