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.

Crude Oil (Not A Good Way To Start The Year)

The first week of the new year was not kind to commodities. First copper got hit, then crude oil then today it was gold. Gold closed down $19.

Above is a 3 year weekly chart of Crude Oil. This is a big spot for oil and we may see a small bounce but I'm still looking for crude to move down to $48 which is the next support level.

One of the many reasons why I was bearish on XLE last week was because of the above chart. Notice the amazing accuracy of the 5 month cycle of highs that has dominated the price action since May of 2004. Every 5 months there is a top. When you combine the cycle with the weekly bearish engulfment in the XLE, it was clear that we had to bearish. Based on my work, I still think there is more weakness ahead for oil. Look to short bounces..Do not short it here because there is some support and we may see a bit of short covering.