4 – Year Cycle Of The Dow

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The 4-Year Cycle, it’s a market phenomenon that goes back to the 19th Century. Each 4-Year Cycle has different trends leading into the cycle, and different bottoming periods, but the one thing they have in common is the strong move that follows. Lucky for all of us, 2006 is the year for a new 4-Year Cycle Low and from the looks of the tape since May, we are unmistakably in the thick of it. The best way to forecast what will happen over the next 3-4 months is to look in the past for clues. So, let’s analyze the last two 4-year cycle lows.

2002

In 2002 we saw the Dow make it’s high for the year at 10,673.10 in mid-March. From this high the Dow floated lower into early May and then had a quick bounce into mid-May. This rally was the last sign of bullishness until late July. The sell off from May to July gave the Dow a quick 17% haircut. The key item to note from the 2002 cycle low is that we sold off from the May – July timeframe to then bounce into August. From August, we then proceeded to continue to the downtrend lower into the October bottom, which has set up the current multi-year rally. The market then stormed out of this low to rally into late November producing a 25% rally in under 8 weeks. Interestingly enough, our recent sell off started in May and has seen it’s price low in late July as well.

1998

In 1998 instead of the sell off beginning in May like in 2006 and 2002, the selling began in July. So, instead of making a significant low in July, in ‘98 we made a significant top. This top in July then produced a multi-week sell off into late August. Now while the bullish action in July is different than what we’ve experienced in 2006 or 2002, there is one thing 1998 has in common with 2002, and that is we made our low in early October. So, what does ‘98 suggest for our current market? Since we know that the major bottoms come in October, the clues lie in the turning dates of the intermediate moves. So, based on the action in 2002 and 1998, we can expect a a major turn dates in late July, and mid-August.

Alton Hill is the co-owner of mysmp.com (My Stock Market Power) which provides top-of-the-line consulting services to all types of investors, from beginners to veterans, who are looking for financial and market analysis.

Please visit http://www.mysmp.com for more information.

Written By : Alton Hill

Categories: Investing
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