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Stock market cycles

From Wikipedia, the free encyclopedia


Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
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Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
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Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]


The lunar cycle[3]
Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
Navigation menu
Not logged inTalkContributionsCreate accountLog inArticleTalkReadEditView
historySearch

Search Wikipedia
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Contents
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Current events
Random article
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Help
About Wikipedia
Community portal
Recent changes
Contact page
Tools
What links here
Related changes
Upload file
Special pages
Permanent link
Page information
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Cite this page
Print/export
Create a book
Download as PDF
Printable version
Languages
Add links
This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]
These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
Navigation menu
Not logged inTalkContributionsCreate accountLog inArticleTalkReadEditView
historySearch

Search Wikipedia
Go
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Contents
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Current events
Random article
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Help
About Wikipedia
Community portal
Recent changes
Contact page
Tools
What links here
Related changes
Upload file
Special pages
Permanent link
Page information
Wikidata item
Cite this page
Print/export
Create a book
Download as PDF
Printable version
Languages
Add links
This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.
Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
Navigation menu
Not logged inTalkContributionsCreate accountLog inArticleTalkReadEditView
historySearch

Search Wikipedia
Go
Main page
Contents
Featured content
Current events
Random article
Donate to Wikipedia
Wikipedia store
Interaction
Help
About Wikipedia
Community portal
Recent changes
Contact page
Tools
What links here
Related changes
Upload file
Special pages
Permanent link
Page information
Wikidata item
Cite this page
Print/export
Create a book
Download as PDF
Printable version
Languages
Add links
This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
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Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]
Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
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Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
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Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
Navigation menu
Not logged inTalkContributionsCreate accountLog inArticleTalkReadEditView
historySearch

Search Wikipedia
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Random article
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Help
About Wikipedia
Community portal
Recent changes
Contact page
Tools
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Related changes
Upload file
Special pages
Permanent link
Page information
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Cite this page
Print/export
Create a book
Download as PDF
Printable version
Languages
Add links
This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:
A long-term trend, which may appear as linear
Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
Navigation menu
Not logged inTalkContributionsCreate accountLog inArticleTalkReadEditView
historySearch

Search Wikipedia
Go
Main page
Contents
Featured content
Current events
Random article
Donate to Wikipedia
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Help
About Wikipedia
Community portal
Recent changes
Contact page
Tools
What links here
Related changes
Upload file
Special pages
Permanent link
Page information
Wikidata item
Cite this page
Print/export
Create a book
Download as PDF
Printable version
Languages
Add links
This page was last edited on 15 October 2017, at 14:17.
Text is available under the Creative Commons Attribution-ShareAlike License;
additional terms may apply. By using this site, you agree to the Terms of Use and
Privacy Policy. Wikipedia� is a registered trademark of the Wikimedia Foundation,
Inc., a non-profit organization.
Privacy policyAbout WikipediaDisclaimersContact WikipediaDevelopersCookie
statementMobile viewEnable previews
Wikimedia Foundation Powered by MediaWiki

Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.
To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
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Stock market cycles


From Wikipedia, the free encyclopedia
Globe icon.
The examples and perspective in this article deal primarily with the United States
and do not represent a worldwide view of the subject. You may improve this article,
discuss the issue on the talk page, or create a new article, as appropriate.
(December 2010) (Learn how and when to remove this template message)
Stock market cycles are the long-term price patterns of stock markets and are often
associated with general business cycles.[1] They are key to technical analysis
where the approach to investing is based on cycles or repeating price patterns.

The efficacy of the predictive nature of these cycles is controversial and some of
these cycles have been quantitatively examined for statistical significance.

Well known cycles include:[2]

The lunar cycle[3]


Annual seasonality, also known as Sell in May or the Halloween indicator[4] As well
as the January effect and July effect.[5]
The four-year United States presidential election cycle in the US.
The 17.6 Year Stock Market Cycle[6]
The 60 year Kondratiev cycles
Investment advisor Mark Hulbert has tracked the long-term performance of Norman
Fosback�s a Seasonality Timing System that combines month-end and holiday-based
buy/sell rules. According to Hulbert, this system has been able to outperform the
market with significantly less risk.[7] According to Stan Weinstein there are four
stages in a major cycle of stocks, stock sectors or the stock market as a whole.
These four stages are (1) consolidation or base building (2) upward advancement (3)
culmination (4) decline.[8]

Contents [hide]
1 Short term and longer term cycles
2 Compound cycles
3 Dynamic cycles
4 Use of multiple screens
5 Publications
6 See also
7 References
8 External links
Short term and longer term cycles[edit]
Cyclical cycles generally last 4 years, with bull and bear market phases lasting
1�3 years, while Secular cycles last about 30 years with bull and bear market
phases lasting 10�20 years. It is generally accepted[citation needed] that in early
2011 the US stock market is in a cyclical bull phase as it has been moving up for a
number of years. It is also generally accepted[citation needed] that it is in a
secular bear phase as it has been stagnant since the stock market peak in 2000. The
longer term Kondratiev cycles are two Secular cycles in length and last roughly 60
years. The end of the Kondratiev cycle is accompanied by economic troubles, such as
the original Great Depression of the 1870s, the Great Depression of the 1930s and
the current Great Recession.

Compound cycles[edit]
The presence of multiple cycles of different periods and magnitudes in conjunction
with linear trends, can give rise to complex patterns, that are mathematically
generated through Fourier analysis.

In order for an investor to more easily visualise a longer term cycle (or a trend),
he sometimes will superimpose a shorter term cycle such as a moving average on top
of it.

A common view of a stock market pattern is one that involves a specific time-frame
(for example a 6-month chart with daily price intervals). In this kind of a chart
one may create and observe any of the following trends or trend relationships:

A long-term trend, which may appear as linear


Intermediate term trends and their relationship to the long-term trend
Random price movements or consolidation (sometimes referred to as 'noise') and its
relationship to one of the above
For example, if one looks at a longer time-frame (perhaps a 2-year chart with
weekly price intervals), the current trend may appear as a part of a larger cycle
(primary trend). Switching to a shorter time-frame (such as a 10-day chart using
60-minute price intervals), may reveal price movements that appear as shorter-term
trends in contrast to the primary trend on the six-month, daily time period, chart.

Dynamic cycles[edit]
Real cyclic motions are not perfectly even; the period varies slightly from one
cycle to the next because of changing physical environmental factors. This dynamic
behavior is also valid for financial market cycles. It requires an awareness of the
active dominant cycle parameter and requires the ability to verify and track the
real current status and dynamic variations that facilitate projection of the next
significant event. Cycles morph over time because of the nature of inner parameters
of length and phase. Active Dominant Cycles in financial markets do not abruptly
jump from one length (e.g., 50) to another (e.g., 120). Typically, one dominant
cycle will remain active for a longer period and vary around the core parameters.
The �genes� of the cycle in terms of length, phase, and amplitude are not fixed and
will morph around the dominant mean parameters.

Steve Puetz calles this "Period variability": �Period variability � Many natural
cycles exhibit considerable variation between repetitions. For instance, the
sunspot cycle has an average period of ~10.75-yr. However, over the past 300 years,
individual cycles varied from 9-yr to 14-yr. Many other natural cycles exhibit
similar variation around mean periods.�[9][10]

These periodic motions abound both in nature and the man-made world. Examples
include a heartbeat or the cyclic movements of planets. Although many real motions
are intrinsically repeated, few are perfectly periodic. For example, a walker�s
stride frequency may vary, and a heart may beat slower or faster. Once an
individual is in a dominant state, the heartbeat cycle will stabilize at an
approximate rate of 85 bpm. However, the exact cycle will not stay static at 85 bpm
but will vary +/- 10%. The variance is not considered a new heartbeat cycle.

To arrive at more reliable and robust information on the dominant cycle for
financial markets, the following steps should be performed:[11]

Step 1: A cycle detection algorithm should have a dynamic filter for detrending,
which is included for pre-processing. This ensures that the data is not affected by
trending information.
Step 2: Subsequently, a cycles engine performs a spectral analysis based on an
optimized Discrete Fourier Transform and then isolates those cycles that are
repetitive and have the largest amplitudes. Research results have shown that an
adapted Goertzel algorithm is most suitable when it comes to detecting cycles in
financial time series.
Step 3: In a third step, the statistic reliability of each cycle is evaluated. The
goal of this procedure is to exclude cycles that have been influenced by one-time
random events (e.g. news).
One of the algorithms used for this is a more sophisticated Bartels Test. The test
builds on detailed mathematics (statistics) which measures the stability of the
amplitude and phase of each cycle. Bartels� statistical test for periodicity,
published at the Carnegie Institution of Washington in 1932, was embraced by the
Foundation for the Study of Cycles decades ago as the best single test for a given
cycle's projected reliability, robustness, and consequently, usefulness. The method
provides a direct measurement of the likelihood that a given cycle is genuine. The
higher the Bartels score is (above 70%, up to 100%), the higher the likelihood that
the cycle is genuine and has not been influenced by one-time events.[12]

Step 4: An important final step in making sense of the cyclic information is to


establish a measurement for the strength of a cycle. Once the third step is
completed, cycles that are dominant (based on their amplitude) and genuine with
reference to their driving force in the financial market are detected. But for
trading purposes, this does not suffice. The price influence of a cycle per bar on
the trading chart is the most crucial information.
Step 5: Sort the outcome according to the calculated cycle strength score.
After a cycles engine has completed all five steps, the cycle at the top of the
list (with the highest cycle strength score) will give information on the dominant
dynamic cycle in the analyzed market. In fact, the wavelength of this cycle is the
dominant dynamic cycle, which is useful for trading financial markets.

Use of multiple screens[edit]


A stock market trader will often use several "screens" or charts on their computer
with different time frames and price intervals in order to gain valuable
information for making profitable buying and selling (trading) decisions.

Often expert traders will emphasize the use of multiple time frames for successful
trading. For example, Alexander Elder suggests a Triple Screen approach.[13][14]

Longer-term screen: To identify the long-term trend and opportunities


Middle screen: To identify the best day(s) on which to locate a buy or sell
opportunity
Finer screen: To identify the optimum intra-day price at which to buy or sell a
given security
Publications[edit]
Conference Board - Consumer Confidence, Conference Board�s Present Situation Index
- Major turns in the Conference Board�s Present Situation Index tend to precede
corresponding turns in the unemployment rate�particularly at business cycle peaks
(that is, going into recessions). Major upturns in the index also tend to
foreshadow cyclical peaks in the unemployment rate, which often occur well after
the end of a recession. Another useful feature of the index that can be gleaned
from the charts is its ability to signal sustained downturns in payroll employment.
Whenever the year-over-year change in this index has turned negative by more than
15 points, the economy has entered into a recession.[15] The most useful methods to
predict business cycle use methods similar to the organization as Eurostat, OECD
and Conference Board.[16]
Federal Reserve Bank of Chicago - Chicago Fed National Activity Index (CFNAI)
Diffusion Index - The Chicago Fed National Activity Index (CFNAI) Diffusion Index
is a macroeconomic model of Business Cycle Models. [When passing through a value of
-0.35, the] �CFNAI Diffusion Index signals the beginnings and ends of [ NBER ]
recessions on average one month earlier than the CFNAI-MA3.� � the crossing of a
-0.35 threshold by the CFNAI Diffusion Index signaled an increased likelihood of
the beginning (from above) and end of a recession (from below)...,[17][18][19]
Federal Reserve Bank of Philadelphia - Aruoba-Diebold-Scotti Business Conditions
Index (ADS Index) - is published by the Federal Reserve Bank of Philadelphia. The
average value of the ADS index is zero. Progressively bigger positive values
indicate progressively better-than-average conditions, whereas progressively more
negative values indicate progressively worse-than-average conditions.[20][21]
Federal Reserve Bank of New York - Yield Curve - the slope of the yield curve is
one of the most powerful predictors of future economic growth, inflation, and
recessions.,[22][23][better source needed]
BofA Merrill Lynch - Global Wave - has indicators from around the world such as
industrial confidence, consumer confidence, estimate revisions, producer prices,
capacity utilization, earnings revisions, and credit spreads. When the Global Wave
troughs, THEN the MSCI All Country World equity index is up 14% on average over the
next 12 months.[24][25]
JP Morgan - Equities tend to do well in environments featuring rising growth rates
as well as falling inflation. S&P 500 return = 9.80% - 6.44 x Max [0, -1.26% -
annual change of the GDP growth rate in %]. R2 = 22.4%.[26]
This study concludes that ECONOMIC GROWTH does influence STOCK MARKET development
with a 1% probability level based on data covering ALL countries for the years
1981-94 with a two-year time lag. This study used the Sims' causality test based on
Granger definition of causality. A Granger causality test is a statistical
hypothesis test for determining whether one time series is useful in forecasting
another. [27]
See also[edit]
Wave
Technical analysis
Market timing
Bottom (technical analysis)
Market trends and Trend following
Histoire des bourses de valeurs (French)
References[edit]
Jump up ^ Channels & Cycles: A Tribute to J. M. Hurst, by Brian Millard, Traders
Press (March 18, 1999)
Jump up ^ The Next Great Bubble Boom: How to Profit from the Greatest Boom in
History, 2005�2009, by Harry S. Dent, Jr., Free Press (September 2004
Jump up ^ The Harvard Business Review, December 6, 2006
Jump up ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={CDFB00A7-8DAA-
49A9-A2EF-83502D872CDF} For everything a season?, By Mark Hulbert, MarketWatch,
Oct. 28, 2005
Jump up ^ https://query.nytimes.com/gst/fullpage.html?
res=9C02EFDA143EF936A35751C1A96F958260 STRATEGIES; Playing the January Effect,
Whatever Its Cause, By MARK HULBERT, December 5, 1999
Jump up ^ The 17.6 Year Stock Market Cycle, Connecting the Panics of 1929, 1987,
2000 and 2007 by Kerry Balenthiran, Harriman House, February 2013
Jump up ^ http://abnormalreturns.com/2005/11/03/hulbert-on-fosback-seasonality-
system/ Hulbert on Fosback seasonality system (Commenting on Barron's article,
Trading the Calendar Can Pay Off Big, By Mark Hulbert, Thursday, November 3, 2005)
Jump up ^ Weinstein S., Secrets for Profiting in Bull and Bear Markets, McGraw
Hill, 1988, p. 31
Jump up ^ Puetz, Stephen (May�June 2014). "Evidence of synchronous, decadal to
billion year cycles in geological, genetic, and astronomical events". Chaos,
Solitons & Fractals. 62�63: Page 55�75. doi:10.1016/j.chaos.2014.04.001.
Jump up ^ von Thienen, Lars (2010). "Dynamic Cycles Explained". whentotrade.
Jump up ^ von Thienen, Lars (August 17, 2017). Decoding The Hidden Market Rhythm -
Part 1: Dynamic Cycles: A Dynamic Approach To Identify And Trade Cycles That
Influence Financial Markets. CreateSpace Independent Publishing. ISBN 978-
1974658244.
Jump up ^ Bartels, Robert (March 1982). "The Rank Version of von Neumann's Ratio
Test for Randomness". Journal of the American Statistical Association. 77 (377):
pp. 40�46. doi:10.1080/01621459.1982.10477764.
Jump up ^ Dr. Alexander Elder, Trading For A Living� (1993)
Jump up ^ http://www.investopedia.com/articles/trading/03/040903.asp Triple Screen
Trading System - Part 1 by Jason Van Bergen
Jump up ^ http://libertystreeteconomics.newyorkfed.org/2013/09/consumer-confidence-
a-useful-indicator-of-the-labor-market.html Federal Reserve Bank of New York,
Consumer Confidence: A Useful Indicator of ... the Labor Market? Jason Bram, Robert
Rich, and Joshua Abel ... Conference Board�s Present Situation Index
Jump up ^ MONITORING AND PREDICTION OF BUSINESS CYCLE Andrea Tk�cov� 1 - Barbora
Gontkovicov� 2 - Em�lia Dulov� Spi��kov� 3
Jump up ^
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2012/cflma
y2012_298.pdf Chicago Fed National Activity Index (CFNAI) Diffusion Index
Jump up ^
http://www.chicagofed.org/digital_assets/publications/cfnai/background/cfnai_backgr
ound.pdf The Chicago Fed National Activity Index (CFNAI) Diffusion Index and
business cycles (see Figure 7)
Jump up ^ [1]
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ Aruoba-Diebold-Scotti Business Conditions Index
Jump up ^ http://www.philadelphiafed.org/research-and-data/real-time-
center/business-conditions-index/ads_last-year.pdf Aruoba-Diebold-Scotti Business
Conditions Index for the past year
Jump up ^ Arturo Estrella & Frederic S. Mishkin, The Review of Economics &
Statistics, Predicting U.S. Recessions: Financial Variables as Leading Indicators,
1998
Jump up ^ Business cycle#Yield curve
Jump up ^ Bank of America, Merrilly Lynch, RIC-Themes and Charts | 21 February
2017, page 12
Jump up ^ Business Insider, Apr. 23, 2012, 2:08 PM | BofA: The Economic 'Global
Wave' Just Turned Positive And That's Extremely Bullish For Stocks
Jump up ^ JP Morgan | Abdullah Sheikh, Director of Research, Strategic Investment
Advisory Group (SIAG). Regime change: Implications of macroeconomic shifts on asset
class and portfolio performance | Research Summit 2011
Jump up ^ STOCK MARKETS AND ECONOMIC GROWTH : A CAUSALITY TEST* G?rsoy, Cudi Tuncer
| Do�u� ?niversitesi, ��letme B?l?m? | M?sl?mov, Al?vsat | Bo�azi�i University |
Dogus University Journal, Vol. 2, pp. 124-132, 2000
External links[edit]
http://research.stlouisfed.org/fred2/graph/?id=EMRATIO
http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-
professional-forecasters/anxious-index/
http://www.nber.org/cycles/
https://www.wellsfargoadvisors.com/market-economy/economic-market-reports/stock-
market-trend.htm
Secular Mean Reversion in the Stock Market
Categories: Stock marketCalendar effect
Navigation menu
Not logged inTalkContributionsCreate accountLog inArticleTalkReadEditView
historySearch

Search Wikipedia
Go
Main page
Contents
Featured content
Current events
Random article
Donate to Wikipedia
Wikipedia store
Interaction
Help
About Wikipedia
Community portal
Recent changes
Contact page
Tools
What links here
Related changes
Upload file
Special pages
Permanent link
Page information
Wikidata item
Cite this page
Print/export
Create a book
Download as PDF
Printable version
Languages
Add links
This page was last edited on 15 October 2017, at 14:17.
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