Want to read something interesting about market cycles???
Many traders and investors are completely unaware of the beautiful symmetry in the markets. They believe that markets are random and are reacting constantly to news events. But whenever there is a significant move in the markets, the 24-hour news cycle bombards the public with the reason why a particular market reacted the way it did. The media always find a reason, probably because the public wants a reason. I am not trying to suggest that news doesn't influence the markets, but I believe that reactions to news events are determined by underlying cyclical forces that are inherent in nature and over which we have no control.
In other words, if a cycle is in a down phase, then the reaction to a seemingly negative news event would be much more pronounced that if that same cycle -- or confluence of cycles -- were in an up phase. One of the best examples of cycles ultimately controlling the extent of a market's reaction to a news event is the stock market's reaction on November 22, 1963 to the assassination of President Kennedy. When the news of the assassination hit the media wires, the Dow sold off sharply, as most traders would expect. But by the end of the trading day, the market was rallying -- and actually closed up for the day, astounding both journalists and analysts alike.
Legendary trader and market analyst W. D. Gann believed that time and price are equivalent. Gann clearly demonstrated this concept by showing that price can be used to forecast future points in any given market.
On October 11, 2007, the Dow Jones Industrial Average printed an all-time absolute high of 14,198. Once a trader knows that price, then that price could be converted into months, weeks, trading days, trading hours, or any other time unit and then extended into the future to forecast when turns should occur.
For example, the extreme intraday high of 14,198 could be converted into 14.2 weeks. If you then count 14.2 weeks from October 11, 2007, you end up at the significant low that occurred on January 22, 2008. If you convert 14,198 into 14.2 months and count 14.2 months from October 11, 2007, you end up at the high that occurred the first full week of January 2009. Likewise, you could convert 14,198 into 14,198 trading hours or trading half-hours or any other time unit and forecast future turning points. This principle works in all freely traded markets and in all timeframes. Apply this Gann concept to your charts and you will be amazed at the beautiful relationship that exists between price and time. Mass human psychology is governed by mathematical cycles and not by news events. The collective unconscious remembers price and the collective unconscious re-visits that price by converting it to time.
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The talking heads on CNBC are ecstatic over the apparent new bull market that is underway. Back at the lows in March, these same pundits were full of gloom and doom. I wonder how many of those same people are aware of the seemingly obvious presence of a recurring 10-year cycle in stocks that historically peaks at or near the end of years ending in "9." Based on historical evidence, this cycle is one of the major reasons the market has been so bullish for the last few months. And based on historical evidence, it should peak by the end of the year if not sooner.
Look at 1999. The market peaked on January 14, 2000, a little later than normal, and then started a large decline. The late peak probably came in because of the massive infusion of cash into the system by the Fed in an attempt to stave off any Y2K meltdown. The meltdown did not happen and everyone breathed a sigh of relief. Then, just 2 weeks later, the market began its decline.
Look at 1989. The market experienced a mini-crash on October 13, 1989; but then, however, it rallied to a new high on January 3, 1990 before beginning a large decline that lasted 2 months.
Other good examples of this cycle can be seen in the markets of 1979, 1949, 1929, and 1919. In most years ending in "9," the market closes the year near or at its peak. I think it is safe to say that we could see a large decline get underway no later than January of 2010. Based on the next turn of the 30-month cycle, the cycle that brought in the October 2007 high, we should see another significant turn in the market in early April of 2010. I think the odds are in favor of that turn being a low.
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I have identified the following turning dates for the month of September, plus or minus one trading day:
September 4
September 11*
September 18
September 28
October 1
At this juncture, September 4 looks like it could be a high and September 11 looks like a low. Large moves tend to occur on or near the autumn equinox, which is September 22. If September 18 is a high, we could see a nice drop around the equinox
