(Updated 09/02/2009)
Most traders are familiar
with the four-year cycle but are unfamiliar with the patterns that occur within
the four years.
1) The red line is
the average of the rallies and declines that have occurred during each
four-year period since 1930 (18.5 cycles). This line includes bull and bear
markets. In recent history we have seen major corrections (E-F) in
1990, 1994(entire year-sideways), and 1998. These corrections were followed by
major rallies (F-A) in 1991, 1995, and 1999.
2) The blue line is
a bullish pattern with rallies 20% longer in price and time than the average,
and corrections 20% shorter in price and time than the average. This is also
referred to as a “right translation”.
3)
The black line is a bearish pattern with rallies 20% shorter in
price and time than the average, and corrections 20% longer in price and time
than the average. This is also referred to as a “left translation”.
1) The black line is the average of all the rallies and declines
that have occurred during each of the 19 four-year cycles since 1930.
2) The red line is
the average of the bear markets from 1930 – 1941, 1946-1949, 1970 – 1981, and 1998-2001
or 8 four-year cycles. Bear markets display a left translation.
3) The blue line is
the average of all the bull markets since 1930 or 11 four-year cycles. Bull
markets display a right translation.
4) The first
two average bear market rallies (F-A & B-C) are
longer in price but shorter in time than the average bull market rallies.
1) The last
Bull market started in August 1982. The end of the first four-year cycle was
expected in 1986. The low came in October 1986 but the decline was minor.
2) If the
next four-year cycle started in October 1986 then the drop in October 1987 was
much greater than the average first decline in the average bullish four-year
cycle Pattern 1 but closer in price to the final drop in the cycle. The
conclusion is the pattern from August 1982 to October 1987 was an extended
four-year cycle that took about five years.
3) Since a
normal four-year cycle was bottom was expected in October 1986 the next bottom
should occur in October 1990 or three years after the October 1987 bottom.
4) Pattern 2
is the average bullish four-year cycle pattern reduced 25% in time and price.
The actual prices tended to fit this compressed four-year pattern.
1998 to 08/31/2009
1) The
1999-2002 four-year cycle was bearish. The RED line is the average bearish
pattern.
2) The rally
that began in October 2002 was a bullish four-year cycle and the next bottom
was expected in October 2006.
3) There are
two possibilities:
a. The June
2006 bottom was too small to be a final four-year cycle bottom and the market
had a very extended four-year cycle that lasted six years. If the bottom
occurred in March 2009 the next four-year cycle could be compressed into less
than two years. This would probably be a Bear cycle and is represented by the
solid red pattern.
b. The June
2006 low was the four-year cycle bottom and the next cycle is a Bear pattern
that is expected to bottom around October 2010. This is represented by the
dashed red pattern. In this case The March 2009 bottom is a D, and the
final F bottom
will occur around October 2010. Note:
The 100 Years of the Dow page shows one indicator that
suggests the June 2006 low was not a four-year cycle bottom but it is possible
that Fed action may have resulted in a high bottom. If this scenario is correct
the 1998-2002 pattern may be repeating and the final bottom will be much lower
than the March 2009 bottom.
