Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Trend a Tale of Three Cycles

Stock-Markets / Cycles Analysis Nov 24, 2009 - 02:57 AM GMT

By: Bob_Clark

Stock-Markets

Best Financial Markets Analysis ArticleHas the market made a major low that will last for years, or are new lows in the cards, lets take a look.


I use cycles as a road map, to do this I apply what I call my theory of relativity, it is based on the premise that there are multiple cycles in effect all the time and each cycle is subservient to the next larger cycle. For example in the chart below I have shown 3 key cycles, the largest being the well know 4 year cycle, the 1 year cycle, and a 4 month (red bars) cycle, there are many more cycles but for today's purposes these will do. Notice how during the past 20 years, the 1 year cycle (blue dots) has not gone below the previous 1 year low unless the dominant 4 year cycle has turned down, in fact on only 2 occasions, one being the drop into the 2002 low and again just recently (red circles), did we see a break of a previous 1 year low at all during the last twenty years!

Simple enough so far, easy money, but wait, there are flies in the ointment that make trading  solely using cycles notoriously difficult, notice that the 4 year's cycle lows are often consistent, this is normally the case, but the highs are more erratic, this is called early, normal or late translation.

Also notice that there is often more than one low formed during each year each can be the  year's low, it can come in early or late, leading one to question, where the heck are we. The thing that really has hair on it, is that a cycle can shift, some say it can skip entirely, but providing it acts like a low and rallies convincingly from it, I usually assume it did come in on schedule, but was of a smaller amplitude than normal, the lows in 1994 and 2006 are excellent examples of this.

1

Looking at the above chart we see the current dynamic, after making a double top, we went down, first breaking though a recent 4 month low and then surpassing all the lows of 2007. So we had broken the previous 1 year low, this showed that the 4 year cycle had turned down. Next we made a low in march of 08 which we can label as a one year low, also notice we made another low 4 months later, which at the time could also be labeled a 1 year low, in fact many analysts were calling for a bottom at that time. 

When that 4 month low was broken, the bottom fell out, we took out the 2002 low, then another 4 month low triggered a bounce, finally we made the low in march of 09, one year from the last low in march of 08, this happened when the 1 year low and the 4 month low both bottomed together (in cycle terms this is called nestling). Everything was fine up until then, a rally was expected from that point, the market was extremely over sold, we had all our ducks lined up and pow, the rally began right on schedule. As you can see from the chart we made an important 4 month cycle low in July, at that point many were seeing a head and shoulders top and expecting a new low, from there we rallied strongly to where we are today. 

Darn, there is hair on it

OK that is all well and good, but what now?  Here is what should happen, if everything goes like clockwork we should top out very soon and then drop sharply for the next 4  months, take out last year's low and make the next 4 year, 1 year and 4 month low in March.

However things have gotten a  little fuzzy, the most obvious problem is that it almost seems impossible to fall that far, that fast, also we have gone up longer than the 1 year cycle should, you see, late in a 4 year down trend, the 1 year cycle should translate or turn early, not go up for eight or nine months (see late 2001-early 02), plus we just made what I believe is 4 month low and are still going up. As a trader, it has been my experience from watching shorter term cycles, that if a cycle shifts, it does it after a larger than normal move, which we have seen.

2 

In the above chart I have shown the 4 month cycle, that has been so tradeable, I believe it just bottomed and is on its way back up, this is very clear on the Transports and the NASDAQ. I have also included potential targets, generated from the head and shoulders pattern and the measured move theory (ABC). Keep in mind that we can turn back down any time, giving an early translation.

A break below the last low would be lights out for this rally, in fact any weakness now will be a negative, after this break of the highs we should bolt up. The question is, when we do turn, can we go to a new low, anything is possible, there are a plethora of fundamental reasons for another panic, but one thing is clear, when this 4 month cycle tops, we could have 3 cycles pulling us back out of orbit, that is providing the 4 year cycle hasn't shifted. For now I continue to pick up nickles in front of the bulldozer,  but I am wearing my running shoes.

To conclude, it is very possible that the huge price drop combined with the enormous reflation  effort, will cause the 4 year cycle to come in early, more important is what I suggest you take from this article, which is how to use shorter term cycles to fine tune your investment timing and more important, protect your capital. Use the map to stay with the trend and never let a bigger cycle roll over on you again, remember it is all relative. 

Next time I will look at the key cycles in gold.

Bob Clark is a professional trader with over twenty years experience, he also provides real time online trading instruction, publishes a daily email trading advisory and maintains a web blog at www.winningtradingtactics.blogspot.com  his email is linesbot@gmail.com.

© 2009 Copyright Bob Clark - 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.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Doug Brown
24 Nov 09, 22:51
Top of this cycle due December 9th 2009

The square in time from the March low will be at 11 degrees of Sagittsrius that will be December 9th 2009. Then wave 3 down will start and the March low will be taken out.

W.D.Gann


Post Comment

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