of pulse tothe universe that accounted for the pervasive presence of thesecycles throughout so many areas of human existence.
In 1941, Dewey organized the Foundation for the Study ofCycles (900 W. Valley Rd., Suite 502, Wayne, PA 19087). It is theoldest organization engaged in cycles research and the recognizedleader in the field. The Foundation publishes Cycles magazine,which presents research in many different areas including eco-nomics and business. It also publishes a monthly report, CycleProjections, which applies cyclical analysis to stocks, commodities,real estate and the economy.
Basic Cyclic Concepts
In 1970, J.M. Hurst authored The Profit Magic of Stock TransactionTiming. Although it deals mainly with stock market cycles, thisbook represents one of the best explanations of cycle theory avail-able in print, and is highly recommended reading. The followingdiagrams are derived from Hurst’s original work.
First, let's see what a cycle looks like and discuss its threemain characteristics. Figure 14.4 shows two repetitions of a pricecycle. The cycle bottoms are called troughs and the tops referred toas crests. Notice that the two waves shown here are measured fromtrough to trough. Cyclic analysts prefer to measure cycle lengths fromlow to low. Measurements can be taken between crests, but they arenot considered to be as stable or reliable as those taken between thetroughs. Therefore, common practice is to measure the beginningand end of a cyclic wave at a low point, as shown in this example.
The three qualities of a cycle are amplitude, period, and phase.Amplitude measures the height of the wave as shown in Figure14.5, and is expressed in dollars, cents, or points. The period of awave, as shown in Figure 14.6, is the time between troughs. In thisexample, the period is 20 days. The phase is a measure of the timelocation of a wave trough. In Figure 14.7, the phase differencebetween two waves is shown. Because there are several differentTime Cycles 349
~°
B (Wave Crest)
ow
Hh OoOFN WwW Bua
{3E
First Cycle——__»|_____-second Cycle—_—__»
A (Wave Trough) C (Wave Trough)
 
Figure 14.4 Two cycles of a price wave. A simple, single price wave ofthe kind that combines to form stock and commodity price action. Only twocycles of this wave are shown, but the wave itself extends infinitely far to theleft and to the right. Such waves repeat themselves cycle after cycle. AS aresult, once the wave is identified, its value can be determined at any past orfuture time. It is this characteristic of waves that provides a degree of pre-dictability for equity price action.
cycles occurring at the same time, phasing allows the cyclic analystto study the relationships between the different cycle lengths.Phasing is also used to identify the date of the last cycle low. If, forexample, a 20 day cycle bottomed 10 days earlier, the date of thenext cycle low can be determined. Once the amplitude, period, andphase of a cycle are known, the cycle can theoretically be extrapo-lated into the future. Assuming the cycle remains fairly constant, itcan then be used to estimate future peaks and troughs. That is thebasis of the cyclic approach in its simplest form.350 Chapter 14
 
Figure 14.5 The amplitude of a wave. In this figure, the wave has anamplitude of ten dollars (from minus five dollars to plus five dollars).Amplitude is always measured from wave trough to wave crest.
 
Figure 14.6 The period of a wave. In this figure, the wave has a periodof 20 days, which is shown measured between two consecutive wave troughs.The period could just as well have been measured between wave crests. Butin the case of price waves, the wave troughs are usually more clearly definedthan the wave crests for reasons that will be discussed later. Consequently,price wave periods are most often measured from trough to trough.Time Cycles 351
 
Figure 14.7 The phase difference between two waves. The phase differ-ence between the two waves shown is 6 days. This phase difference is mea-sured between the troughs of the two waves because, again, wave troughs arethe most convenient points to identify in the case of price waves.
Cyclic Principles
Let’s take a look now at some of the principles that underlie thecyclic philosophy. The four most important ones are thePrinciples of Summation, Harmonicity, Synchronicity, andProportionality.
The Principle of Summation holds that all price movementis the simple addition of all active cycles. Figure 14.8 demonstrateshow the price pattern on the top is formed by simply addingtogether the two different cycles at the bottom of the chart.Notice, in particular, the appearance of the double top in compos-ite wave C. Cycle theory holds that all price patterns are formed bythe interaction of two or more different cycles. We'll come back tothis point again. The Principle of Summation gives us an impor-tant insight into the rationale of cyclic forecasting. Let’s assumethat all price action is just the sum of different cycle lengths.Assume further that each of those individual cycles could be iso-lated and measured. Assume also that each of those cycles will con-tinue to fluctuate into the future. Then by simply continuing eachcycle into the future and summing them back together again, thefuture price trend should be the result. Or, so the theory goes.352 Chapter 14
g33
 
Figure 14.8 The summation of two waves. The dotted lines show how,at each point in time, the value of wave A is added to the value of wave B toproduce the value of composite wave C.
The Principle of Harmonicity simply means that neighbor-ing waves are usually related by a small, whole number. Thatnumber is usually two. For example, if a 20 day cycle exists, thenext shorter cycle will usually be half its length, or 10 days. Thenext longer cycle would then be 40 days. If you’ll remember backto the discussion on the 4 week rule (Chapter 9), the principle ofharmonics was invoked to explain the validity of using a shorter2 week rule and a longer 8 weeks.Time Cycles 353
The Principle of Synchronicity refers to the strong tenden-cy for waves of differing lengths to bottom at about the sametime. Figure 14.9 is meant to show both harmonicity and syn-chronicity. Wave B at the bottom of the chart is half the length ofwave A. Wave A includes two repetitions of the smaller wave B,showing harmonicity between the two waves. Notice also thatwhen wave A bottoms, wave B tends to do the same, demonstrat-ing synchronicity between the two. Synchronicity also meansthat similar cycle lengths of different markets will tend to turntogether.
The Principle of Proportionality describes the relationshipbetween cycle period and amplitude. Cycles with longer periods(lengths) should have proportionally wider amplitudes. Theamplitude, or height, of a 40 day cycle, for example, should beabout double that of a 20 day cycle.
The Principles of Variation and Nominality
There are two other cyclic principles that describe cycle behaviorin a more general sense—The Principles of Variation and Nominality.The Principle of Variation, as the name implies, is a recog-nition of the fact that all of the other cyclic principles alreadymentioned—summation, harmonicity, synchronicity, and propor-tionality—are just strong tendencies and not hard and fast rules.Some “variation” can and usually does occur in the real world.The Principle of Nominality is based on the premise that,despite the differences that exist in the various markets and allow-ing for some variation in the implementing of cyclic principles,there seems to be a nominal set of harmonically related cycles thataffect all markets. And that nominal model of cycle lengths can beused as a Starting point in the analysis of any market. Figure 14.10shows a simplified version of that nominal model. The modelbegins with an 18 year cycle and proceeds to each successivelylower cycle half its length. The only exception is the relationshipbetween 54 and 18 months which is a third instead of a half.When we discuss the various cycle lengths in the individ-ual markets, we’ll see that this nominal model does account formost cyclic activity. For now, look at the “Days” column. Notice354 Chapter 14
tc. Lacking Harmonicity
Wave B
| Period B |re A
a. Displaying Both Harmonicity and Synchronicity
 
Figure 14.9 Harmonicity and synchronicity.Time Cycles 355
 
Figure 14.10 = The simplified nominal model.
40, 20, 10, and 5 days. You'll recognize immediately that thesenumbers account for most of the popular moving average lengths.Even the well known 4, 9, and 18 day moving average techniqueis a variation of the 5, 10, and 20 day numbers. Many oscillatorsuse 5, 10, and 20 days. Weekly rule breakouts use the same num-bers translated into 2, 4, and 8 weeks.
HOW CYCLIC CONCEPTS HELPEXPLAIN CHARTING TECHNIQUES
Chapter 3 in Hurst’s book explains in great detail how the stan-dard charting techniques—trendlines and channels, chart pat-terns, and moving averages—can be better understood and usedto greater advantage when coordinated with cyclic; principles.Figure 14.11 helps explain the existence of trendlines and chan-nels. The flat cycle wave along the bottom becomes a rising pricechannel when it is summed with a rising line representing thelong term uptrend. Notice how much the horizontal cycle alongthe bottom of the chart resembles an oscillator.
Figure 14.12 from the same chapter shows how a head andshoulders topping pattern is formed by combining two cycle356 Chapter 14
CONSTANT WIDTH CHANNEL
C~RESULTANT SIMULATED
B- IDEALIZED SUM OF ALL LONGERDURATION COMPONENTS
A~ IDEALIZED CYCLIC COMPONENT
 
Figure 14.11 Channel formation. (Source: Hurst, J.M., The Profit Magicof Stock Transaction Timing [Englewood Cliffs, N.J.: Prentice-Hall, Inc.,1970}.B- IDEALIZED SUM OF ALL LONGERDURATION COMPONENTS:
 
Figure 14.12a Adding another component. (Source: Hurst, ].M., TheProfit Magic of Stock Transaction Timing [Englewood Cliffs, N.J.:Prentice-Hall, Inc., 1970].)
 
Figure 14.12b = The Summation principle applied. (Source: Hurst, J.M.,The Profit Magic of Stock Transaction Timing [Englewood Cliffs, N.J.:Prentice Hall. Inc., 19701].)358 Chapter 14
 
lengths with a rising line representing the sum of all longer dura-tion components. Hurst goes on to explain double tops, triangles,flags, and pennants through the application of cycles. The “V”top or bottom, for example, occurs when an intermediate cycleturns at the exact same time as its next longer and next shorterduration cycles.
Hurst also addresses how moving averages can be mademore useful if their lengths are synchronized with dominant cyclelengths. Students of tradition-al charting techniques shouldgain additional insight intohow these popular chart pic-tures form and maybe evenwhy they work by readingHurst’s chapter, entitled“Verify Your Chart Patterns.”
PRIMARYCYCLE
% PRIMARYDOMINANT CYCLES cycleThere are many differentcycles affecting the financialmarkets. The only ones of realvalue for forecasting purposesare the dominant cycles.Dominant cycles are thosethat consistently affect prices
TRADINGCYCLE
recrest
: ec:Acaveuarsera Sy: darn t ec iand that can be clearly identi- |: ec i ore 3 i i: crest
fied. Most futures marketshave at least five dominantcycles. In an earlier chapter onthe use of long term charts, itwas stressed that all technicalanalysis should begin with thelong term picture, graduallyworking toward the shorter
EPRICE ACTIVITY dl: thy! :Me!i nye ™,,
 
term. That principle holdstrue in the study of cycles. Theproper procedure is to begin
Figure 14.13 (Source: The Powerof Oscillator/Cycle Combinations byWalt Bressert.)Time Cycles 359
 
the analysis with a study of long term dominant cycles, which canspan several years; then work toward the intermediate, which canbe several weeks to several months; finally, the very short termcycles, from several hours to several days, can be used for timingof entry and exit points and to help confirm the turning points ofthe longer cycles.
Classification of Cycles
The general categories are: long term cycles (2 or more years inlength), the seasonal cycle (1 year), the primary or intermediate cycle(9 to 26 weeks), and the trading cycle (4 weeks). The trading cyclebreaks down into two shorter alpha and beta cycles, which aver-age 2 weeks each. (The labels Primary, Trading, Alpha, and Betaare used by Walt Bressert to describe the various cycle lengths.)(See Figure 14.13.)
The Kondratieff Wave
There are even longer range cycles at work. Perhaps the bestknown is the approximate 54 year Kondratieff cycle. This contro-versial long cycle of economic activity, first discovered by aRussian economist in the 1920s by the name of Nikolai D.Kondratieff, appears to exert a major influence on virtually allstock and commodity prices. In particular, a 54 year cycle hasbeen identified in interest rates, copper, cotton, wheat, stocks,and wholesale commodity prices. Kondratieff tracked his “longwave” from 1789 using such factors as commodity prices, pig ironproduction, and wages of agricultural workers in England. (SeeFigure 14.14.) The Kondratieff cycle has become a popular subjectof discussion in recent years, primarily owing to the fact that itslast top occurred in the 1920s, and its next top is long overdue.Kondratieff himself paid a heavy price for his cyclic view of capi-talistic economies. He is believed to have died in a Siberian laborcamp. For more information, see The Long Wave Cycle(Kondratieff), translated by Guy Daniels. (Two other books on thesubject are The K Wave by David Knox Barker and The Great Cycleby Dick Stoken.)360
Chapter 14
 
ZBL 0 sy,
‘peodpen. _
 
 
 Time Cycles 361
COMBINING CYCLE LENGTHS
As a general rule, long term and seasonal cycles determine themajor trend of a market. Obviously, if a two year cycle has bot-tomed, it can be expected to advance for at least a year, measuredfrom its trough to its crest. Therefore, the long term cycle exertsmajor influence on market direction. Markets also have annualseasonal patterns, meaning that they tend to peak or trough atcertain times of the year. Grain markets, for example, usually hittheir low point around harvest time and rally from there. Seasonalmoves usually last for several months.
For trading purposes, the weekly primary cycle is the mostuseful. The 3 to 6 month primary cycle is the equivalent of theintermediate trend, and generally determines which side of amarket to trade. The next shorter cycle, the 4 week tradingcycle, is used to establish entry and exit points in the directionof the primary trend. If the primary trend is up, troughs in thetrading cycle are used for purchases. If the primary trend isdown, crests in the trading cycles should be sold short. The 10day alpha and beta cycles can be used for further fine tuning.(See Figure 14.13.)
THE IMPORTANCE OF TREND
The concept of trading in the direction of the trend is stressedthroughout the body of technical analysis. In an earlier chapter,it was suggested that short term dips should be used for pur-chases if the intermediate trend was up, and that short termbulges be sold in downtrends. In the chapter on Elliott WaveTheory, it was pointed out that five wave moves only take placein the direction of the next larger trend. Therefore, it is neces-sary when using any short term trend for timing purposes tofirst determine the direction of the next longer trend and thentrade in the direction of that longer trend. That concept holdstrue in cycles. The trend of each cycle is determined by the directionof its next longer cycle. Or stated the other way, once the trend ofa longer cycle is established, the trend of the next shorter cycleis known.362 Chapter 14
The 28 Day Trading Cycle in Commodities
There is one important short term cycle that tends to influencemost commodity markets—the 28 day trading cycle. In other words,most markets have a tendency to form a trading cycle low every 4weeks. One possible explanation for this strong cyclic tendencythroughout all commodity markets is the lunar cycle. Burton Pughstudied the 28 day cycle in the wheat market in the 1930s (Scienceand Secrets of Wheat Trading, Lambert-Gann, Pomeroy, WA, 1978,orig., 1933) and concluded that the moon had some influence onmarket turning points. His theory was that wheat should bebought on a full moon and sold on a new moon. Pugh acknowl-edged, however, that the lunar effects were mild and could be over-ridden by the effects of longer cycles or important news events.
Whether or not the moon has anything to do with it, theaverage 28 day cycle does exist and explains many of the numbersused in the development of shorter term indicators and tradingsystems. First of all, the 28 day cycle is based on calendar days.Translated into actual trading days, the number becomes 20.We've already commented on how many popular moving aver-ages, oscillators, and weekly rules are based on the number 20 andits harmonically related shorter cycles, 10 and 5. The 5, 10, and20 day moving averages are widely used along with their deriva-tives, 4, 9, and 18. Many traders use 10 and 40 day moving aver-ages, with the number 40 being the next harmonically relatedlonger cycle at twice the length of 20.
In Chapter 9, we discussed the profitability of the 4 weekrule developed by Richard Donchian. Buy signals were generatedwhen a market set new 4 week highs and a sell signal when a 4week low was established. Knowledge of the existence of a 4 weektrading cycle gives a better insight into the significance of thatnumber and helps us to understand why the 4 week rule hasworked so well over the years. When a market exceeds the high ofthe previous 4 weeks, cycle logic tells us that, at the very least, thenext longer cycle (the 8 week cycle) has bottomed and turned up.
LEFT AND RIGHT TRANSLATION
The concept of translation may very well be the most usefulaspect of cycle analysis. Left and right translation refers to theTime Cycles 363
shifting of the cycle peaks either to the left or the right of theideal cycle midpoint. For example, a 20 day trading cycle ismeasured from low to low. The ideal peak should occur 10 daysinto the cycle, or at the halfway point. That would allow for a10 day advance followed by a 10 day decline. Ideal cycle peaks,however, rarely occur. Most variations in cycles occur at thepeaks (or crests) and not at the troughs. That’s why cycletroughs are considered more reliable and are used to measurecycle lengths.
The cycle crests act differently depending on the trend ofthe next longer cycle. If the trend is up, the cycle crest shifts tothe right of the ideal midpoint, causing right translation. If thelonger trend is down, the cycle crest shifts to the left of the mid-point, causing left translation. Therefore, right translation is bull-ish and left translation is bearish. Stop to think about it. All we’resaying here is that in a bull trend, prices will spend more timegoing up than down. In a bear trend, prices spend more timegoing down than up. Isn’t that the basic definition of a trend?Only, in this case, we're talking about time instead of price. (SeeFigure 14.15.)
HOW TO ISOLATE CYCLES
In order to study the various cycles affecting any given market, itis necessary to first isolate each dominant cycle. There are variousways of accomplishing this task. The simplest is by visual inspec-tion. By studying daily bar charts, for example, it is possible toidentify obvious tops and bottoms in a market. By taking the aver-age time periods between those cyclic tops and bottoms, certainaverage lengths can be found.
There are tools available to make that task a bit easier. Onesuch tool is the Ehrlich Cycle Finder, named after its inventor, StanEhrlich (ECF, 112 Vida Court, Novato, CA 94947 [415] 892-1183).The Cycle Finder is an accordion-like device that can be placed onthe price chart for visual inspection. The distance between thepoints is always equidistant and can be expanded or contracted tofit any cycle length. By plotting a distance between any two obvi-ous cycle lows, it can be quickly determined if other cycle lows of364 Chapter 14
I/II
A SIMPLE CYCLE
 
             
  
SMALLER CYCLECOMBINED WITHTREND :
          
        
RIGHT TRANSLATIONAs the Trend of the LargerCycte Moves UP
(BULL MARKET)
LEFT TRANSLATIONAs the Trend of the LargerCycle Moves DOWN
(BEAR MARKET)
Figure 14.15 Example of left and right translation. Figure A shows asimple cycle. Figure B shows the trend of the larger cycle. Figure C shows thecombined effect. When the longer trend is up, the midpeak shifts to the right.When the longer trend is down, the midpeak shifts to the left. Right transla-tion is bullish, left translation is bearish. (Source: The Power ofOscillator/Cycle Combination by Walt Bressert.)Time Cycles 365
the same length exist. An electronic version of that device, calledthe Ehrlich Cycle Forecaster, is now available as an analysis tech-nique on Omega Research’s Trade Station and Super Charts(#Omega Research, 8700 West Flagler Street, Suite 250, Miami, FL33174, [305] 551-9991, www.omegaresearch.com). (See Figures14.16-14.18.)
Computers can help you find cycles by visual inspection.The user first puts a price chart on the screen. The next step is topick a prominent bottom on the chart as a starting point. Oncethat is done, vertical lines (or arcs) appear every 10 days (thedefault value). The cycle periods can be lengthened, shortened, ormoved left or right to find the right cycle fit on the chart. (SeeFigures 14.19 and 14.20.)
CIBTRE C=1O0ERD 47.02 HH1008.80 Lnt00087 ECF.controller ECF.cycle
‘Next Cycle Bottom = 0409/90, in 7 bare|
CF Cycle Lows indicator:
16 date of the Anchor bar Is: 1031/2. The timeis: 04:16pm. The CycleSpacing Is 48.
‘you click on a barto the right of the Anchor Bar, 6!the spacing between the Cycle Lines will increase #1by 1. you click on abarto the left ofthe Anchor ifbar, the spacing will decreage by 1. 3
 
 
 
Figure 14.16 The 4 year presidential cycle is clearly identified with theEhrlich Cycle Forecaster (see vertical lines). If the cycle is still working, thenext major low would be expected to occur during 1998.of te Anchor bare: toms. The time
 
 
Figure 14.17 = The Ehrlich Cycle Forecaster has identified a 49 day trad-ing cycle in S&P 500 futures prices (see vertical lines). The ECF estimatesthat the next cycle low will be formed 49 days from the last cycle low, whichwould be on March 30, 1998.
ECF.Cycie Lows Indicator:date of the Anchor bar te: 10/1086. The timeJ: 04:00pm. The Cycle Spacing te 133,
 
 
 
Figure 14.18 |The ECF has uncovered a 133 day cycle in Boeing (see verti-cal lines). Since the last cycle low occurred during November, 1997, the ECFestimates that the next cycle low is due to occur 133 days later on June 3, 1998. 
(10/29/03 (*DWI X) Dow Industrials
 
Weekly Ber Chart
40 Week Cycle Lows
 
 
 
 
 
Figure 14.19a = The bottoms in the cycle arcs coincide with importantreaction lows in the Dow when spaced 40 weeks apart. That suggests a 40week cycle in the Dow. The last two cycle troughs were in the spring of 1997and the start of 1998 (see arrows).
 
ber19107 (DWI X) Dow Industrials
 
Daily Bar Chart
iif y
hi ifi Anatyf" | nn h ' VA My '
|
 
 
 
 
 
 
Figure 14.19b = The daily cycle arcs reveal the presence of 50 day cyclebottoms in the Dow during the second half of 1997 and the start of 1998.The idea is to shift the arcs until their lows coincide with a number of reac-tion lows on the price chart. 
1S (TR1600) Treasury Bonds 1600.
 
Monthly Bar Chart
 
 
 
 
 
Figure 14.20a Beginning with the major bottom in 1981, the cycle find-er arcs reveal that bonds have shown a tendency to form important bottomsevery 75 months (6.25 years). These numbers may shift with time, but stillprovide useful trading information.
 
110397 (TR1600) Treasury Bonds 1600
 
Daily Bar Chart
 
 
 
 
Figure 14.20b Applied to this daily chart, the cycle arcs showed a ten-dency for bond prices to bottom every 55 trading days during this time span(see arrows).Time Cycles 369
SEASONAL CYCLES
All markets are affected to some extent by an annual seasonalcycle. The seasonal cycle refers to the tendency for markets tomove in a given direction at certain times of the year. The mostobvious seasonals involve the grain markets where seasonallows usually occur around harvest time when supply is mostplentiful. In soybeans, for example, most seasonal tops occurbetween April and June with seasonal bottoms taking placebetween August and October. (See Figure 14.21.) One wellknown seasonal pattern is the “February Break” where grainand soybean prices usually drop from late December or earlyJanuary into February.
Nov Soybeans(CBOT) 15 Year Seasonal(83-97)
Aion
 
 
 
co We foDec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
 
Figure 14.21 Soybeans usually peak in May and bottom in October.370 Chapter 14
Although the reasons for seasonal tops and bottoms aremore obvious in the agricultural markets, virtually all marketsexperience seasonal patterns. Copper, for example, shows a strongseasonal uptrend from the January/February period with a ten-dency to top in March or April. (See Figure 14.22.) Silver has a lowin January with higher prices into March. Gold shows a tendencyto bottom in August. Petroleum products have a tendency to peakduring October and usually don’t bottom until the end of thewinter. (See Figure 14.23.) Financial markets also have seasonalpatterns.
 
May Copper(CMX) 15 Year Seasonal(83-97)
Research Cantir, Inc. :
 
 
 
 
Figure 14.22 Copper usually bottoms during October and February, butpeaks during the April-May period.Time Cycles 371
Jun Crude Oil(NYM) 14 Year Seasonal(84-97)
 
 
 
ee . Lek Le nee 40Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
 
 
Figure 14.23 = Crude oil prices peak during October and turn up duringMarch.
The U.S. Dollar has a tendency to bottom during January.(See Figure 14.24.) Treasury Bond prices usually hit importanthighs during January. Over the entire year, Treasury Bond pricesare usually weaker during the first half of the year and strongerduring the second half. (See Figure 14.25.) The examples of sea-sonal charts are provided by the Moore Research Center (MooreResearch Center, 321 West 13th Avenue, Eugene, OR 97401, (800)927-7259), which specializes in seasonal analysis of futures mar-kets. 
Jun Deutsche Mark(IMM) 15 Year Seasonal(83-97)
[MBA acc
 
 
Sep Oct Nov Dec Jan Feb Mar “Apr May Jun
 
Figure 14.24 The peak in the German mark during January coincides witha lowpoint in the U.S. dollar that usually occurs at the start of the new year.
Sep 30-Year T-Bonds(CBOT) 15 Year Seasonal(83-97)fl ea BEG oy
 
 
 
 
“Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
 
Figure 14.25 Treasury Bonds prices usually peak around the new year,and then remain weak for most of the first half. The second half of the yearis better for bond bulls.Time Cycles 373
STOCK MARKET CYCLES
Did you know that the strongest three month span for the stockmarket is November through January? February is then weaker,but is followed by a strong March and April. After a soft June, themarket turns strong during July (the start of the traditional sum-mer rally). The weakest month of the year is September. Thestrongest month is December (ending with the well known SantaClaus rally just after Christmas). That information, and a wholelot more about stock market cycles, can be found in Yale Hirsch’sannual Stock Trader’s Almanac (The Hirsch Organization, 184Central Avenue, Old Tappen, NJ 07675).
THE JANUARY BAROMETER
According to Hirsch: “as January goes, so goes the year.” The wellknown January Barometer holds that what the S&P 500 does dur-ing January will determine what kind of year the market as a wholewill have. Another variation on that theme is the belief that thedirection of the S&P 500 during the first 5 trading days of the yeargives some hint of what’s ahead for the year. The JanuaryBarometer shouldn’t be confused with the January Effect, which isthe tendency for smaller stocks to outperform larger stocks duringJanuary.
THE PRESIDENTIAL CYCLE
Another well known cycle that affects stock market behavior isthe 4