Equity Waves
Like finding a location on a map, the best way to find our current position in the Cycles affecting Equities is by looking at the
big picture first. The largest well known cycle is the K-Wave, or its more complex and precise variation the
Princeton Economic Confidence Model, but we should also look at other
cycles like the Decennial and four year Election cycles. You can learn more about Martin Armstrong Princeton Economic model and his
constitutional fight with the US government here.
The Calendar model
The Calendar model unites the concept of K-Wave seasons with the 51.6 year economic cycle year of the Princeton model.
One 51.6 year cycle is made up of 4 idealized seasons of 12.9 years and we should expect markets to turn significantly near these
12.9 year boundaries. We can see that empirical data matches this very well with the market making turns in 1929, 42, 55, 68, 81, 94
and 2007, but also the middle series as well in 1935, 48, 61, 74, 87, 2000 and 2013.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Equities and the decennial cycle
While this cycle is not part of the Economic models, I have nonetheless included it here since it can not be ignored with the
statistical deviation shown in the chart and table below. We must also consider the frequency of major highs being made at the
decennial boundary like the USA in 1929, Japan in 1989 and the Nasdaq in 2000. We can also see the effect of the sub-harmonics
like the 2.5 and 5 year cycles in the chart of the Volatility index and in the price action of 1982, 1987 and 2002. Also note that
most of the gains of the 10 year cycle were made in the first 2.5 years of the cycle, with the subsequent 2.5 years more volatile
as the VIX starts turning up. It is in this part of the decennial cycle that many serious declines occur which can be good buying
opportunities, like in 37-40 (1937 down 33%), 87-90 (87 crash down 30%) and 97-2000 (98 crash down 20%).
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
The well known 4 year Election cycle
Only a few of the 4 year cycle lows have been minor since 1948, and it could be argued that the 1987 crash was the delayed effect of the suppressed 1986 cycle low. With Global Equities on the rise since the last cycle low in 2002 and a correction overdue, we must be very cautious even into 2007 until Equities correct significantly. Also note that years ending in 3 and 7 are 75% more likely to have a serious decline than any other years. The Baltic Dry index of shipping rates clearly shows the 4 year cycle in 9994, 98, 2002 and 2006 and showed the weak 2000 peak that preceded the large 2002 cycle low.
Charts courtesy of DecisionPoint.com
Charts courtesy of StockCharts.com
The Laws of Harmonics
The Laws of Harmonics dictate that smaller sub-harmonic cycles like a 2 and 1 year cycle should also be present and we do find
evidence of this. The Semiconductors are one of the most sentiment driven sector and magnifies the waves enough for accurate
detection of the 2 year Cycle. The Seasonal 12 month cycle is the basis of the old saying "Sell in May and go Away", and it has
been statistically shown that most of the gains of the last 100 years were between November and May. The effect of larger cycles
make the smaller sub-harmonic ones more difficult to detect but we can see them in the charts of the SPX and Telecoms, one of the
largest Technology sector.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com