● Evidence exists for a major 4 year bottom in 2006.
● A massive 4 year cycle was evident during the 1961 - 1983 period.
● Cycles are measured in terms of Duration (width) and Magnitude (height).
● Price movement appears as the summation of various cycles.
|Basics of Cyclic Theory: Many investors believe that markets are affected by various cycles. The top of
the cycle is called the crest. The bottom of the cycle is called the trough. The time that elapses between troughs
is called the duration. The height of the cycle is called the magnitude (strength). Numerous cycles may be active
at the same time. Their effect is cumulative. The graph on the right shows the summation of theoretical long and
short term cycles.
Major Historic Cycles: A four year cycle is easy to spot in the following graph of the Dow Jones Industrial
Average. The troughs are spaced at roughly four year intervals. The duration of the cycles ranged from
thirty-nine months to fifty-five months (measured from trough to trough).
|How can I use this information?
For example, if the market is tending to form bottoms (troughs) at roughly four year intervals, then cyclic
investors attempt to estimate when the next four year bottom will occur by measuring four years from the last four
year bottom. The projected four year bottom should create a buying opportunity.
This issue of Investment Tips only touched the surface of cyclic theory. A more thorough knowledge of cycles
would enable one to observe evidence for the existence of a four year cycle in the 1990 - 2006 period. Major
bottoms occurred in 1990 (Oct.), 1994 (April), 1998 (Sept.) and 2002 (Oct.). Measuring four years from October
of 2002 we arrive at October of 2006. The temptation to expect a major bottom in 2006 is hard to resist. But
market forecasting is an inexact science. Assuming a margin for error of 8 months, the next major four year
bottom could reasonably appear anytime between now and Mid-2007.
The current four year cycle encourages investors to delay establishing bullish positions until the market has
made significantly lower lows. However, SignalTrend's unemotional computer timing system is still bullish. It may
change its buy / sell signal in the near future. If that happens, SignalTrend will send you an email alert.
Remember, SignalTrend's stock market timing system was backtested 100 years with excellent results!
For a more thorough explanation of cyclic theory, consult The Profit Magic of Stock Transaction Timing, by J. M.
Hurst (1970). In fact, the diagrams above were patterned after his work. Another book to consider is Cycles:
Mysterious Forces That Trigger Events by Edward R. Dewey with Og Mandino.
If you would like to see more information about cycles in future issues of SignalTrend's Investment Tips, just fill
out the "Suggest a topic" form below.
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|Basics of Cyclic Theory
Proprietary Graphs, Tables and Analyses - All Rights Reserved
|Four Year Cycle in the DJIA (1963 - 1983)