4 YEAR CYCLES SINCE 1896
from :http://www.aegeancapital.com/freeservices/archives1/Guests/Wood/update.htm
The last 4-year cycle bottomed in September at 7615 on the Dow Jones Industrial Average. The top of the current 4-year cycle, as of November 2001, occurred in January 2000 at 11723 on the Dow. The count from the 1998 lows to this potential top is only 16 months. Going back to 1896 and looking at the 4-year cycle in the Dow, the 4-year cycle has topped only 5 times in 20 months or less. Every 4-year cycle that has topped in 20 months or less has 100% of the time taken out the previous 4-year cycle low. See Table on 4-year cycle.
When analyzing the 5 times that this has happened, I see that the percent decline from the 4 year cycle highs to the lows are as follows: 46% from the 1901 high of 78 to the 1903 low of 42, 44% from the 1912 high of 94 to the 1914 low of 53, 86% from the 1930 high of 294 to the 1932 low of 41, 40% from the 1939 high of 156 to the 1942 low of 93, and 16% from the 1948 high of 193 to the 1949 low of 162. The average decline of these 5 cycles is 46%. If the current cycle retraced 86%, this would put the Dow at 1641 and the S&P at 214. A 40% decline would put the Dow at 7034 and the S&P at 921. A 16% decline would put the Dow at 9847 and the S&P at 1289. A 46% decline would put the Dow at 6330 and the S&P 500 at 829.
There are three other occurrences where the 4-year cycle low took out the previous 4-year low. The only differences are that in these three cases the 4-year cycle did not top in 20 months or less. Those three occurrences were 1921, 1970 and 1974.
On December 19, 1917 the 4-year cycle bottomed at 66. This cycle topped 23 months later at 120 on November 3, 1919. The cycle bottomed on August 24, 1921 at 64. This was a 46% decline from the 1919 top. On October 7, 1966 the 4-year cycle bottomed at 744. This cycle topped 26 months later on December 3, 1968 at 985. The bottom occurred on May 26, 1970 at 631. This was a 36% decline from the 1968 top. From the low on May 26, 1970 a new 4-year cycle began. This cycle moved up for 32 months to top on January 11, 1973 at 1052. This cycle bottomed on December 12, 1974 at 578. This was a 45% decline from the 1973 top.
What does this all mean? Well, All 8 cycles mentioned above took out the previous cycle low and the average decline for all 8 cycles was 45%. 100% of the cycles that topped in 20 months or less took out the previous cycle low. Another point to note is that the 1921, 1970 and 1974 lows also took out the previous 4-year cycle lows regardless of the duration from the low to the high and the declines were very large, 46% in 1921, 36% in 1970 and 45% in 1974.
One might think 16% (like in 1948/49) is not bad. We have already had (from high to low) a 31% decline in the Dow, so the worst could be over. The problem with this theory is that the 31% decline did not take out the previous 4 year cycle low and in 1946 a 16% decline was enough to take out the previous low. The point is that regardless of the percent decline, ALL 8 of the cycles mentioned above DID take out the previous 4-year cycle low. This indicates that 7615 on the Dow are minimum down side objectives for the current 4-year cycle low, which is due to bottom sometime in late 2002. Also note that ALL 5 cycles that topped in 20 months or less did take out the previous lows. Again we appear to have topped in 16 months on the Dow.
Another bearish statistic I found in this study is the percent advancement from the 4-year cycle low to the 4-year cycle top. There are 8 occurrences where the percent advancement of the 4-year cycle was less than 67%. These tops occurred on June17, 1901, September 30, 1912, April 17, 1930, September 12, 1939, June 15, 1948, December 3, 1968, January 11, 1973, and April 27, 1981. After these tops ALL but 1 cycle moved down taking out the previous 4-year cycle low. All 5 of the 4-year cycles that topped in 20 months or less also had advancements of less than 67%. Two of the three cycles that also took out the previous 4-year cycle lows but topped in more than 20 months also had advances of less than 67%. This was the 1966 to 1968 advance and the 1970 to 1973 advance. The one exception was the 4-year cycle move from 1978 to the top in 1981. This advancement was only 38% and the previous 4-year low did hold. So, 7 out of 8 tops with a percentage move of less than 67% took out the previous 4-year low. All 7 of the cycles that had advances of 67% or less were cycles that also took out the previous 4-year lows. This suggests an 88% probability that any 4-year cycle that advances 67% or less will also take out the previous 4-year low.
If the current 4-year cycle has indeed topped, the percentage advancement for the move from the 1998 4-year low would be a mere 54% for the Dow. Based on this finding it appears that we have an 88% probability of a move below the previous 4-year cycle low.
The seasonal cycle is a smaller annual cycle and 85% of the time it’s duration is between 8 and 16 months. The last seasonal cycle low was in March 2001 9106 on the Dow. In bullish markets the expectation is for the seasonal cycle to top 7 to 14 months from the previous low. In bear markets the expectation is for the seasonal cycle to top 1 to 5 months from the previous low. Going back to 1955 and studying the seasonal cycles it has topped 9 times in 5 months or less. In all but 1 time (1994) when this happened the previous seasonal cycle was taken out. That’s an 88.9% probability.
The September 2001 lows moved below the March 2001 seasonal lows. This is a count of only 6 months from the March seasonal lows to the September lows. Therefore I suspect that the September 2001 lows are not the final lows for the seasonal cycle. The count is just to short. I feel that we will see the current seasonal cycle move below the September 2001 lows as the current seasonal cycle bottoms around the March 2002 time frame. If the move into this seasonal low does not take us below the October 1998 lows, I feel certain that the next seasonal low will. The next seasonal low should also mark the low for the next 4-year low in the Dow.
The weekly cycle is the next smallest cycle and it’s duration runs 16 to 25 weeks. The September lows were indeed a weekly cycle low. The top could have occurred the week of December 28, 2001 at 10184.50. However, as of December 31, 2001 we do not have confirmation that this weekly cycle has put in it’s top. The week of December 28th is the 14th week since the September 2001 lows. It is this weekly cycle that has been keeping the Dow up since the September lows. I feel that the direction of the 4-year cycle is down, the direction of the seasonal cycle is down and once we get confirmation that the weekly cycle has indeed topped and it turns down, we should see the equities move much lower.
Summarizing my study in the Dow, it appears that we have a very high probability of moving below the previous 4-year lows. Remember 100% of all 4-year cycles that topped in 20 months or less moved below the previous 4 year low. Also, 100% of the 4-year cycles that topped in 20 months also had advances of less than 67% and we are currently setting with an advance of 54%. The average percent decline expected would be 45%. That would be 6448 on the Dow. The minimum would be a move somewhere below the previous 4-year lows made in 1998. That is 7615 on the Dow. |
