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Market Cycles and Fibonacci
The relevance of trading with TIME-cycles alone is far less accurate than forecasting with PRICE. But its relevance will increase if, as the forecastedtimes approach, price patterns and momentum indicators show signs of reversal.Also, when trading markets like futures and commodities, the capital requiredto cover risks can be large due to leverage. Therefore, these long-term cyclesonly provide useful information in a limited capacity.
I discuss cycles here to illustrate:
l How several long-term cycles have accurately predictedsignificant market turning points.
l The amazing mathematical "coincidences" Ihave discovered while searching for an accurate market-timing method.
You may wish to bare this information in mind if trading long-term markets, such asstocks, possibly options or perhaps long-term index futures where a turningpoint is possible?
Gannand Fibonacci Relationships in the Universe
Below are some cycles that have been found by scientists and astronomers whenstudying the universe. Numbers that we have seen through this course (such as numbersthat are or are near to Fibonacci numbers, or Gann multiples andfractions, are highlighted).
Note atremendous amount of Fibonacci relationships!
Also,one of Gann’s major techniques for market timing was to use fractions of acircle, specifically into quarters, eighths and thirds, to count the number ofdays/weeks/months between highs and lows. For example, the circle has 360degrees, 90 is one quarter, 45 is one eighth. Important numbers to countbetween highs/lows are therefore 30, 45, 60, 90, 135, (90 + 45), 150, 180, 210,225, 270, 315, 330 and 360.
Rounding up one eighth of 90 is 11, two-eighths is 22, three-eighths is 33, 45, 56, 67,78 and 90. These are other numbers to look out for.
Common Numbers in Solar Activity (in Earth Years):
Humanistic,Historical Points (in years):
Problems with Counting Cycles
As well as regular cycles there are random fluctuations in things, too. Therandom occurrences can camouflage the regular cycles and also generate whatappear to be new, smaller cycles, which they may not be. If you are zealousenough you can find regularity in almost anything, including random numberswhere you know that the regularity has no significance and know it will notcontinue. This is the problem with market-timing signals.
Also,many things act as if they are influenced simultaneously by several differentrhythmic forces, the composite effect of which is not regular at all.
The cycles may have been present in the figures you have been studying merely by chance.The ups and downs you have noticed which come at more or less regular timeintervals may have just happened to come that way. The regularity - the cycle -is there all right, but in such circumstances it has no significance.
The following examples illustrate this problem of cycles appearing/disappearing.
Cycles in the Stock Market
When forecasting stock market cycles, the cycles are influenced by random events. Cyclesare inherently unreliable and their predictive value provides only specificprobabilities when the suggested time period is approached.
Fixed time cycles are apparent in stock market tops and bottoms. But eventually acycle will cease to continue. For example, the four-year cycle in the US stockmarket held true from 1954 to 1982 producing accurate forecasts of 8 marketbottoms. Had an investor recognized the cycle in 1962, he could have amassed afortune over the next 20-years. But in 1986, the cycle’s prediction of a lowfailed to provide a bear market and in 1987 its rising portion failed to preventthe largest crash since 1929.
Another cycle that may have disappeared is the 3-year cycle that began in 1975,forecasting lows in 1978, 1981, 1984, 1987 and 1990 – there was no significantbottom in 1993, 1996 or 1999.
Other long-term cycles (such as Kondratieff and Benner/Fibonacci) as well as ElliottWave counts, suggest that the ultra long-term bull market may be coming toan end.
Therefore,many old or existing cycles may come to an end and new ones begin.
Fibonacci Relationships in the Stock Market Cycles
1 yearis a little less than 13 months, a little less than 55 weeks anda little less than 377 days. Thus a Fibonacci time period in onenatural duration is close to a Fibonacci duration in another.
The Kondratieff Cycle is a common, often-quoted cycle of financial and economicbehavior that lasts approximately 54 years. This 54-year cycle is very close toa Fibonacci 55 number!
The 54(55) year cycle was recognized by the Maya tribes of ancient Central America,the ancient Israelites, and rediscovered in the 1920’s by Russian economistNikolai Kondratieff (hence the name of the Kondratieff Cycle.)
Fractions of the Kondratieff Cycle (54 Years)
Dividing the Kondratieff Cycle of 54 years by 2 equals 27 years, and dividing by 2 againequals 13.5 years. This is near to a Fibonacci number 13 and, 13.5 yearsmultiplied by 12 months equals 162 months – a Fibonacci 1.62!
Dividing 54 by 3 equals 18 years and dividing this by 2 equals 9 years, or 108 months.Dividing by 2 again leaves a smaller cycle of 4.5 years, which is 54 months –almost a Fibonacci 55!
Two-thirds of 54 equals 36 years. 5-times 36 years gives 180 years. This is the same as180 degrees is half a circle, or half a planetary orbit.
All these periods are inter-linked by Fibonacci! How bizarre!
Rememberthat the proportion of two-thirds was used greatly by Gann. It is also near toa Fibonacci 0.618 ratio.
Let us take a look at a long-term chart illustrating the Kondratieff cycle:
Kondratieff 54-Year Cycle over US Wholesale Prices.
Also,on the US stock market, the Kondratieff Cycle appears to subdivide intoharmonic sub-cycles of between 16 and 20 years. The last set of sub-cycles sawUS stock market lows in 1842, (+17) 1859, (+18) 1877, (+19) 1896, (+18) 1914,(+18) 1932, (+17) 1949, (+17) 1966 and (+16) 1982.
Long term Dow Jones showing dips on Kondratieff cycles: 1842, (+17) 1859, (+18)1877, (+19) 1896, (+18) 1914, (+18) 1932, (+17) 1949, (+17) 1966 and (+16)1982.
Benner Cycle
The diagram below is based on Samuel Benner’s cyclic discoveries but I havemodified and updated it to fit the behavior of the stock market.
It uses 3 cyclic periods to project each reversal point.
The first cycle goes: 8-years, 9-years, 10-years, and begins in 1902. Theprojected lows were forecast on 1902, (+8) 1910, (+9) 1919, (+10) 1929, (+8)1937, (+9) 1946, etc.
The next cyclic periods project reversals in years of 16-years, 18-years,20-years (i.e. double the period of the first cycle). Starting with an18-year period from 1903, this cycle forecast lows in 1903, (+18) 1921, (+20)1941, (+16) 1957, (+18) 1975, etc.
The next cyclic period again uses the 16-18-20-year counts, but begin in1913. This cycle projected market turning points on 1913, (+20) 1933, (+16)1949, (+18) 1967, (+20) 1987, etc.
If you compare thisBenner Cycle with a long-term stock market chart, you will see how it predictedmany of the historic high and low turning points.
Benner Cycle.
More Recognized Cycles
The 20 Year Cycle
The 20-year cycle has accurately called the historic and dramatic lows in the USstock market in 1903, 1921, 1942, 1962 and 1982. The next target for a low onthis cycle is 2002, which coincides with the Kondratieff Cycle and othersignals calling for a reversal around 2002-2003. (As the market maynow be in a bear market, the reversal will only be a correction holding belowprevious highs…. If the cycle is to continue?)
The 8 and 12 Year Cycles
The ideal years called by the 8-year cycle in the US stock market are: 1934 (1933),1942, 1950 (1949), 1958 (1957), 1966, 1974, 1982, 1990 and 1998. (Bracketsindicate actual market bottoms, otherwise year shown is an actual bottom!) Thenext 8-year cycle occurs again in 2006.
The 12-year cycle is less reliable but coincides well with the other historic lows.The next forecast low called by the 12-year cycle is in 2010.
The 4Year Cycle
The 4-year cycle has been very accurate over the last 50 years, calling a majorityof turning points since 1954. Recently, the 4-year cycle has hit in 1994, 1998…the next being in 2002.
The 4-year cycle is usually explained by fundamentalists as being caused by the4-year US presidential election. Each Presidential term usually contains 2years of down-move followed by 2-years of up move.
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