The 35.21 Month '3-Year Cycle' Revisited
With the current bull market moving up ever higher on the lists of the longest bull markets in history, it seems only natural to want to delve further into the subject matter. We have seen so many articles in recent times talking about the length and age of the current bull market that I'm sure we could all put together a very long list in very little time. Two relatively recent articles from Forbes are fairly good examples of what I'm talking about: "The Bernanke Bull Market Is The Third Strongest In Modern Stock Market History", and "Why You Should Prepare For A Stock Market Correction." While this type of article, with its simplified graphics and summarized statistical reporting gives us a generalized comparative idea about the current age and structure of the stock market in relation to historical standards and expectations, I think it ultimately only whets our appetite.
Cycle analysis gives us much more information than the somewhat anecdotal comparative statistical similarities and anomalies. By putting things back into their long term context and looking at how those bull markets repeat over time, we not only get a good comparative understanding between periods, but we also get great insight into how those periods interact and interrelate, and "cycle" over time. Wikipedia defines stockmarket cycles as "the long-term price patterns of the stock market". If we take those comparisons of "longer and shorter", and "more and less", that are taken out of context and ranked in "Top Ten" fashion and return them to their relative time-continuum contexts, we immediately increase our knowledge not only about their larger historical contexts, but also about those "long-term price patterns" as well.
The "business cycle" is a household term that alerts us to the fact that the concept of economic "ups and downs" is well known and understood, but who can tell you when it starts and when it ends? There are hundreds, if not thousands of economic cycle models, with Martin Armstrong's ECM perhaps being one of the most famous, but given their extremely complicated, sophisticated, and data intensive nature, it's not surprising that a vast majority of us end of thinking that they are best left to those institutions and businesses with the required resources needed for that kind of 'data crunching', many of which, by the way - Fidelity being a good example - inform and update their clients on their basic modeling and periodic findings.
Hence the idea of studying cycles generally gets "shelved", and once its inherent lack of precision is factored in, we might even say "dumped". A technical analyst works strictly with price data and its derivatives however, which means that we can explore cyclic phenomena within historical price patterns with relatively limited resources (even if that doesn't refer to time and patience), and if we can get beyond the lack of precision limitations and accept the orientative nature of cycle studies, I, for one, think they are extremely valuable complements for the rest of our TA.
Investopedia gives us a basic introduction into the four main phases of price cycles that can be used as our "basic understanding" for all the more famous price cycle patterns, from the shorter term Wall cycle, to the longer term Kitchin cycle, to the even longer term Decennial cycle and others like the 9.2 and 18 year cycles. In all of these cases, it's strictly price action that is analyzed, and the cyclic patterns derived stem exclusively from that price action under study.
Now I'm not one to spend time trying to reinvent the wheel, but I'm not the kind of person who rejects new useful ideas that result from serendipitous happenchance either, and it was precisely serendipitous happenchance that led me to the 35.21 Month 3 Year Cycle while studying the Kitchin cycle in the summer of 2012. As I pointed out in my first post on the subject back in September of 2012, I think it has had a very impressive track record of marking both cyclical highs and lows since the 1932 low. There were some very interesting short and intermediate term takeaways mentioned in that post, but the longer term was left pretty much unaddressed with the high probability reasonable expectation for future long term price action based on that particular cyclical analysis being relegated to a continuing long term consolidation pattern. Today, over a year and countless green trading sessions later, with price breaking to new highs, and in many cases breaking out of those major long term consolidation ranges, the situation has changed drastically, and the obvious question that now arises is: are we seeing an important late cycle breakout instead of the previously expected continued consolidation pattern?
Needless to say, it became apparent to me that a "revisit" was in order, with a longer term, multi-scenario look specifically at the current 46.948 year cycle beginning in 1979 with a targeted 2026 low being the focal point. My friend ZimZeb from Rational Insolvency generously agreed to lend a hand, and has put together a couple of very nice composite cycle charts for us. The equal weighted composite cycle chart covering the 46.948 year cycle (and sub-cycles) that started in 1979 seen just below these lines is another fine and easily appreciated visual example of the cycle's excellent track record, and, obviously, given those results, its ability to be a very high probability indicator of future price cycles as well.
The 35.21 Month Cycle and Derivatives Equal Weighted Composite Chart
At this point, I'd like to throw out a few quick quotes taken from the MTA Knowledge Base (with the corresponding source citations given therein):
"Just because the analysis of financial time series data may suggest cycles exist does not imply that the cycles are precise ... As an example, a 20-day cycle low can occur several days before or after the expected 20 days from the last low, which itself may have been several days before or after its ideal location. The 20-day cycle, from spectral or other analysis, may only be 19.2 days, or it may be 20.4 days. Cycle periods therefore are indefinite and have error. This means that for investment purposes, all cycles should be used only as a guide."
"Occasionally, where a cycle low is expected, a peak occurs instead. This is an example of an inversion ...
... First, inversions most often occur at peaks in harmonic cycles when the next longer cycle is at a peak."
(There is much more on that page - as well as on the other related pages on their website - that I highly recommend also reading.)
Now, with that in mind, and getting back to the chart, you have surely recognized the major 1997 inversion of the 5.868 year cycle that indeed came at the 11.737 year cycle peak (and which was also caught within the larger rising 46.948, 23.474 cycles as well). We currently have a similar setup with the 11.737 and 23.474 year cycles.
Also, by focusing on the actual price peaks (and their subsequent dramatic declines) and their relationship to their underlying cycles, one can also readily appreciate the very exaggerated right hand translated nature of the majority of the cycles seen in this study. This is a phenomenon that has so far continued up to the present day, and is key to the other half of the current cycle setup.
As I alluded to in abbreviated fashion above, the big question as I see it from a cycle analysis standpoint that we now have before us is:
1) will the overall pattern of extreme right hand translated price peaks continue to hold steady, with imminent resulting right hand translated peaks in the current 11.737, 5.868 and 2.934 year cycles, and a severe decline within a long term consolidation pattern into the 2014 projected low consequently developing?
2) or will we get a cycle inversion with price 'going parabolic' for much longer and much farther than any of us may have ever been able to imagine?
The second possibility would be something that obeys a right hand skewing of the complete cycle composite - something along the lines of the following chart (please keep in mind the incredibly bullish implications of this chart - for stocks, of course, and not necessarily for the general economy or our own well-being, as I hope we are all fully aware of by this point - and that it factors in ZERO parabolic price phenomenon and "only" represents a right hand translated composite picture of amplitude and time).
The 35.21 Month Cycle and Derivatives Sub-linear Right Hand Translation Composite Chart
In closing, while the 35.21 Month 3 Year Cycle, like any cycle, might not give us much more guidance than a basic "heads up", the fact that there is a current confluence of clearly identifiable cyclic patterns suggesting that price could move either way in quick and violent terms should make things very clear that this particular cycle analysis places a very high probability on the short to intermediate term future in equity markets being anything but boring.
Some blogs that work extensively, if not exclusively, with cycle
analysis (with some going beyond strict price pattern analysis) that I can
ZimZeb also mentions http://econocasts.blogspot.com