Saturday, October 04, 2008

What Is The 4-Year Cycle In The Stock Market Telling Us?



I haven't heard much lately about the 4 year cycle in the stock market so I'd like to post my opinions about this well known and very accurate cycle.

For those of you who are not familiar with the 4 year cycle I suggest you get your hands on a long-term chart of the Dow Jones Industrials and observe the significant lows or buying opportunities that have taken place over the past 100 years. You'll notice that approximately every 4 years there is some kind of a low that takes place in the stock market and it's been very accurate over a long period of time.

In the above chart I show the S&P going back to about 1981. Notice how every 4 years the stock market makes a low which is followed by a rally. The first low on this chart took place in 1982... 4 years later in 1986 we have another cyclical low where the market had an explosive rally just prior to the 1987 crash. The next low in the cycle takes us to 1990 where we saw another buying opportunity. The same thing happened again in 1994, 1998, 2002 and 2006.

Based on this cycle, the next projected low for the stock market is due in 2010! This means stocks should trend lower going into the fall of 2010. I know it's an ugly forecast and many will disagree with me, but from a cyclical viewpoint I have to be looking for stocks to move lower to sideways over the next 2 years.

Does this mean I will only play the market from the short side for the next 2 years? Of course not! There will be opportunities on both sides of the market depending on which sectors you are trading. The point I'm trying to bring out with the above chart is that the majority of stocks in my opinion will be under selling pressure until the 2010 cyclical low is established. Until then, I'd favor selling short into rallies.

2 comments:

Anonymous said...

I have been thinking the same way Kevin . This current market looks doomed, so we should start to see somekind of support. That being said , should the dow not hold 9700 - 9800 , I personally would step back . I am now all cash waiting to go short . Now that the fed still has that last bullet left I may wait for it prior to getting aggressive .

Great site , keep up the good work !

Mindri said...

Kevin,
Do you mean to suggest that S&P can go to low 300 ? That will indeed be extremely ugly.

Mohinder

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