Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Current Stock Market Conditions from both a Dow Theory and a Cyclical Perspective

Stock-Markets / Dow Theory Dec 29, 2007 - 11:45 AM GMT

By: Tim_Wood

Stock-Markets Best Financial Markets Analysis ArticleAs I'm sure you all know, I have been saying for quite some time that the equity markets have been operating within one of the longest 4-year cycles in stock market history. This is not some hollow or shallow opinion in which I'm letting the wish father the thought. In reality, I wish that I could tell you the 4-year cycle low is behind us, because that would certainly make my job much easier as that is what the majority of the public seem to want to believe. In any event, I do not align myself with popular opinion to make my job easier. Rather, my opinion is based strictly on statistical analysis and very specific indicators. As we move into 2008, the statistics nor the indicators have changed in regard to this matter. Therefore, my opinion continues to be that the 4-year cycle low still lies ahead.


Prior to the current 4-year cycle, the previous 4-year cycle of similar duration ran 62 months from low to low and the longest 4-year cycle ever weighed in at 68 months in duration. December 2007 will conclude the 62 nd month for the current 4-year cycle, which now makes this the second longest 4-year cycle since the inception of the Dow Jones Industrial Average in 1896.

I also want to remind you that on November 21, 2007 The Dow Jones Industrial Average closed below the pervious closing low of the previous secondary low point. With the Transports already below their August secondary low point, the confirmation by the Industrials on November 21 st served to confirm that in accordance to Dow theory, the Primary Trend has turned bearish.

Thus, as we move into 2008, the market is not only operating within the context of the second longest 4-year cycle since 1896 and the pressure associated with this over-extended cycle and uncorrected move, but it is also entering the new year with the Primary Trend Bearish, in accordance to Dow theory. So, as we move into 2008 the evidence emphatically suggests that the now Primary Bearish Trend, in accordance with Dow theory, should take the equity markets down into the very over extended 4-year cycle low in 2008.

That being said, I also want to make it perfectly clear that cycles have absolutely nothing to do with Dow theory. These happen to be totally different disciplines. But, I can tell you that the vast majority of 4-year cycle tops also occur with a Dow theory non-confirmation just as has occurred since October.

In a purist sense, Dow theory is a study of price action only as related to the Dow Jones Industrial Average and the Dow Jones Transportation Average. The Dow theory looks at such things as confirmation and non-confirmation, Dow's three movements, which is a means to separate and understand the short, intermediate and long-term movements, market phasing and value. Many think that the Utilities are a part of Dow theory, but they are not. As a matter of fact, the Utility average didn't even come to be until after Charles Dow's death. The Dow theory only looks at the Industrials and the Transports. For more on the history of Dow theory, please visit www.cyclesman.com/Articles.htm and be sure to read the articles on William Peter Hamilton, Robert Rhea and George Schaefer as well.

My use of cycles simply allows me to quantify the moves within the broad context or framework of Dow theory. On page 42 of 'The Stock Market Barometer,' William Peter Hamilton gives the dates and directions of the “Primary Trend.” These dates happen to correspond exactly with the price action of the “4-year cycle.” In 'The Story of the Averages,' Robert Rhea quantifies each “Primary Swing” and “Secondary Reaction” throughout this entire 200 page document. These dates also correspond with 4-year, annual and intermediate-term cycle highs and lows. So, regardless of the label we pin on these movements, these price movements are one in the same. The cycles work is simply another completely separate discipline that allows me to quantify the movements regardless of their names. Furthermore, cycles allow for the development of expectations based on the statistical quantification of prior moves of the same degree. Cycles also allow one to look at the market in several dimensions, just as Charles Dow did with his three-movement concept. Ultimately, the cycles work allows me to apply the historical quantifications in order to develop future expectations in which the Dow theory does not.

In regard to Dow's three movements, Dow, Hamilton and Rhea also spoke of the market having “three well defined movements” or dimensions. Hamilton said, “There are three movements of the averages, all of which may be in progress at one and the same time. The first, and most important, is the primary trend: the broad upward or downward movements known as bull or bear markets, which may be of several years' duration. The second, and most deceptive movement, is the secondary reaction: an important decline in a primary bull market or a rally in a primary bear market. These reactions usually last from three weeks to as many months. The third, and usually unimportant movement, is the daily fluctuation.” Cycles are simply another way of looking at these movements.

As an example, the diagram below was taken from 'The Story of the Averages' by Robert Rhea. Notice that Mr. Rhea labels the move from Point A to Point J as the Primary Bull Market, and the move from Point J down to Point Q as a Primary Bear Market. From a cyclical perspective, the move from Point A to Point J was the move from the 4-year cycle low to the 4-year cycle top. The move from Point J down to Point Q was the move from the 4-year cycle top into the 4-year cycle low, and the complete move from Point A to Point Q was one complete 4-year cycle. From a cyclical perspective the moves from Points A to C and from C to E were the movements of the short term trading cycle. Movement G to I was an intermediate-term cycle while the movement from Point E to Point I constituted one complete annual cycle.


Rhea labels the movement H to I as a “Secondary Reaction” in the Bull market. If I put my cycles hat on, that same movement becomes the downside piece of both a intermediate-term and an annual cycle. Movements from Point K to Point L and M to N were both “Secondary Reactions” in the Bear market. I might add that this advance from K to L topped out in only 3 months and there was a slight Dow theory non-confirmation at this top.

From a Dow theory perspective, this non-confirmation was a warning, and when the movement from Point L to M violated the Point K lows, the bear market was confirmed. Through my eyes as a cycles analyst, the upside piece of this move from Point K to L was both a intermediate-term and an annual cycle advance that topped in only 3 months. My work with cycles tells me that any annual cycle that tops out in 6 months or less has a 73% probability of moving below the previous annual cycle low, which was Point K. The same is also true for the advance between Point M and N in that M was expected to have been violated based on the cyclical quantifications. This same cycles work tells me that the average decline for all annual cycles topping in 6 months or less, and that failed to move above their previous annual cycle high (in this case Point J) is 26.59%. In this case the decline that followed into the 4-year and annual cycle low, Point Q, was 45.22%. Dow theory does not tell us these things. Statistics such as these only come from cyclical or trend quantifications and can be used to complement other methods of market analysis, including the Dow theory and the current setup.

The bottom line is that the market can do anything it wants and only a fool would say that he knows for sure what is going to happen. But, based upon the fact that 90% of the previous Dow theory bearish primary trend changes have been significant market developments along with the ongoing statistics and indicators surrounding the 4-year cycle, all appearances are that the 4-year cycle low still lies ahead. Also, in accordance with Dow's three movements, the advance out of the November low has been a counter-trend “Secondary Reaction” in opposition to the Primary Trend change that occurred on November 21 st .

The fact that this 4-year cycle has stretched to this extent has caused many to dismiss the significance of the 4-year cycle. Likewise, the rally that has occurred since the November 21 st Primary Trend change has caused many to dismiss the Dow theory. In my opinion it is this type of complacency in the wake of this overdone 4-year cycle and now confirmed Primary Bearish Trend that makes this setup so dangerous. The straw that finally breaks the camel's back may be closer than you think. You have been warned!

I have begun doing free Friday market commentary that is available at www.cyclesman.com/Articles.htm so please begin joining me there. In the December issue of Cycles News & Views I reviewed all Primary Bear markets going back to 1896 in an effort to answer the question of how far this decline could potentially go. I also have a very detailed slide show presentation on cycle quantifications, which gives a statistical analysis surrounding the overdone 4-year cycle that I have been warning about as well. A subscription includes access to the monthly issues of Cycles News & Views, which included Dow theory, a very detailed statistical based analysis covering not only the stock market, but the dollar, bonds, gold, silver, oil and gasoline along with short-term updates 3 times a week.

By Tim Wood
Cyclesman.com

© 2007 Cycles News & Views; All Rights Reserved
Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit www.cyclesman.com for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Tim Wood Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules