Another Look at the 4-Year Cycle
I continue to see articles suggesting that the 4-year cycle low occurred back at the June/July low. Recently I was even sent an article, suggesting that there isn't a 4-year cycle in the market at all. Yet, others proclaim that the 4-year cycle used to exist but that it is no longer a relevant factor. It is my belief that most everyone that is even aware of the 4-year cycle was looking for the low to occur in October. After all, we all know that's when the major lows and especially 4-year cycle lows occur, Right? Just look at 2002. That 4-year cycle low came in October. The 1987 4-year cycle low came in October as well. Hey, the bear market low in 1974 also occurred with the 4-year cycle low in October. Man, this cycles stuff is easy. All we have to do is count out so many time units and there you are. So, if it didn't happen in October, it must be that the 4-year cycle is no longer applicable, Right?
Wrong! Let's look at the facts. Since 1896, the inception of the Dow Jones averages, there have been twenty-seven completed 4-year cycles. Fact is, October seems to be the most popular month in which 4-year cycle lows occur, but still there is a relatively small number of cycles that have actually bottomed in October. The reality is that of the twenty-seven completed 4-year cycles, only eight or 29.6% have occurred in October. The next highest count for any given month drops to three and here there was a three way tie. There have been three 4-year cycles bottom in March, three in September and three in November. The next highest count for 4-year cycle lows drops to two and there was also a three way tie there. There have been two 4-year cycle lows occur in April, two in June and two in August. Lastly, there has been one 4-year cycle low occur in May and one in July. There has never been a 4-year cycle low in the month of January or February. So yes, October does take the prize for being the month with the highest count of 4-year cycle lows, but as you can see from this data, there have been far more 4-year cycle lows occur outside of the month of October than in October. So, just because something didn't occur that you were expecting does not mean that it's not going to happen. Maybe, just maybe, it's going to happen when the majority least expect it. Isn't that the way the market generally works?
In late January I told my subscribers that the statistical probabilities surrounding the phasing of the current 4-year cycle did not indicate a low in October of this year. In fact, I told them that the highest probability did not even indicate a low in the fall of this year at all. Once the market moved into the May high and began down into the summer low I did think that the May high was probably the 4-year top and I did not expect the 2000 high to be bettered. This advance has changed some of the statistical expectations surrounding the decline into the 4-year cycle low and even the setup to follow the 4-year cycle low. But, the fact that the 2000 high was bettered has not changed the phasing of the current 4-year cycle low. The simple fact is, the market is still probing for that high, the 4-year cycle low still lies ahead and my expected timing for that low remains intact. All the while the public is being sucked into the market in the final stages of the 4-year cycle advance.
Below I have plotted a monthly chart of the Industrials along with my Trend Indicator. This indicator is only one of many indicators I use for cycle identification and there are other pieces of the puzzle that have to fall in place as well. But, for simplicity I want to use this indicator to illustrate a point.
Since 1896 this indicator has turned down below its trigger line in conjunction with every 4-year cycle top. Note that for this entire 4-year cycle advance this indicator only turned briefly below its trigger line in October 2005. That very brief downturn obviously was not in conjunction with the 4-year cycle top. The fact that the decline into the June/July low never turned this indicator down is only one of many pieces of evidence suggesting that the 4-year cycle low did not occur in the summer.
Below I have included another historical chart on the 4-year cycle and this indicator. Here too, you can see that this indicator has historically done a good job of confirming the 4-year cycle top. The fact that this indicator remains positive and has never turned down serves as evidence that the decline into the summer low was merely a low of a lessor degree.
I have also included a monthly chart of the Transports below and you can see here too that this indicator serves to confirm 4-year cycle tops and bottoms as well. So, while many, if not most, people are buying into the fallacy that the 4-year cycle low has occurred or is no longer applicable, this single indicator, which has confirmed each and every 4-year cycle top and bottom since 1896, has never turned down confirming this low, much less a high. The market is still positive, but it is nonetheless moving into an important top and not out of a 4-year cycle low. No, that still lies ahead.
For more details on the current technical conditions using Dow theory, trend quantification, cycles, statistical expectations and more, visit www.cyclesman.com. I cover the stock market, gold, the dollar and bonds. The newsletter also includes short-term updates 3 nights a week. In the November newsletter I give very specific details on the current 4-year cycle, specific time targets, statistical based price targets based on the current setup and the timing for the coming 4-year cycle low, which has not changed since late January. Don't get caught up in the hype at this very critical point. If you have an interest in the market, get the statistical facts.