I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Tuesday, February 28, 2012

A Look at 4-year Cycles

As I have stated many times, my Trend System does not issue signals on a strict time relationship. (See this post for more details: Dec 8 - Daily Cycles, Looking for an Edge).

But I know that most people want to and do count cycles on a strict time relationship (e.g. a seasonal cycle / 1 year, 4-year cycle, K-waves / 40-year cycles, etc.). So I wanted to take a stab at a 4-year cycle chart.

The first observation that is immediately obvious if you look at the SPX (and S&P Composite) back to the Great Depression is that the market generally trends up, and as such most 4-year cycle tops are not 'major tops'. But often are just a mid cycle climax followed by a pullback, and then a continuation (higher high) up. And what's more is that trend is observed in recent market history as well.

The way I constructed the chart below was to assume that the 2000 and 2007 peaks were major tops (and hence 4 year cycle tops) and did a best fit of 4-years cycles around those peaks. Obviously the 4-year cycle will not be *strictly* 4 years long (e.g. the time between the 2000-2007 peaks is about 7.5 years, not 8 years, which means that each '4-year' cycle is more like 3.75 years ... but almost counts in horseshoes, hand grenades, and cycles work :) ).

What I have done is place my theoretical Secular Bear Market Projection in Historical Context on the chart. And what is interesting is that the 4 year cycle boundaries line up nicely in terms of how long I think the major waves should approximately last in my projection.

Take this projection from this post: Update on Long Term Projection

This observation also fits very nicely with my Bear Market updated Price Stretching chart which is described in these posts:

-- Moving Average 'Price Stretching' Update
-- Bear Market Momentum Internals: Examination of Moving Average 'Price Stretching'

Another reason why I find this projection compelling is that it give all the internal indicators (which have been making highs right alongside price this entire rally) time to roll over and go into divergence, as discussed here: Long Term Technicals and Macro

For crying out loud nothing about this chart is bearish for the 2011 top, whereas *everything* was bearish for the 2007 top. Again, no evidence for a top call based on a look at multiple sets of market internals.

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