The Dow Report: The Probe into the 4-year Cycle Top Continue
By Tim W Wood CPA, October 13, 2006
The last 4-year cycle low occurred on October 10, 2002 at 7,197.49. With the recent advance above the May 2006 high, this 4-year cycle advance has proven to still be alive and well. As of this writing on October 13, 2006, this advance has carried the Dow Jones Industrial Average up 4,763.02 points on an intra-day basis, or 66.17%. At present, this advance remains intact and my Cycle Turn Indicator remains bullish on the short, intermediate and long-term basis. The Cycle Turn Indicator turned bullish on both the intermediate and long-term basis in conjunction with the June/July lows and have remained bullish ever since. Beginning in September as we approached the May 2006 highs I began being cautious of this advance and I remain cautious today. When I say cautious, what I really mean is that I know this advance is mature and subject to at least an intermediate-term top. Let me make it clear that at this time I have no indication of such top and I have not had an intermediate-term sell signal since my indicators turned up in June. It is merely the maturity of the intermediate-term advance out of the June/July lows as well as the maturity of the entire 4-year cycle that is causing by cautionary stance at this time. However, until at least the intermediate-term Cycle Turn Indicator turns down, this advance is not done and can continue pushing even higher.
Now, I want to talk specifically about the 4-year cycle. In the charts below we have the Dow Jones Industrial Average going back to 1896 and I have marked each of the previous 4-year cycle lows.
One statistical point of importance here continues to be the fact that since 1896 the average decline of ALL 4-year cycles has been 31.52%. The least decline ever into a 4-year cycle low from the intra-day top down into the intra-day low was 12.04% and this occurred with the decline into the 1994 4-year cycle low, which was obviously part of the greatest bull market ever. The second shallowest decline into the 4-year cycle low occurred with the drop into the 1953 4-year cycle low and there the decline was 13.79% on an intra-day basis. I might add that this occurred during the second greatest bull market ever. In the current case, the decline from the May 10th high at 11,670.20 down into the July 18th low at 10,683.30 was a mere 8.46%. This is only one of many reasons that I do not believe the 4-year cycle low occurred back at the June/July lows. NO, the market is still advancing up into that high and my expected timing for the coming 4-year cycle low has not changed at all. In light of the recent advance that has carried the markets above their May 2006 highs, the statistical data tells me that the magnitude of the expected decline has changed. But, the data surrounding the fact that the 4-year cycle low still lies ahead nor the timing of the coming 4-year cycle low have changed. The only question now is where the 4-year cycle top comes in at. True, I am anticipating this top at most anytime now, but the answer is relatively simple because the Cycle Turn and Trend Indicators will tell me when this happens and again, these indicators remain positive as of this writing.
Another topic surrounding the 4-year cycle that I want to share with you has to do with something called cycle translation. Cycles are measured from low to low. With the 4-year cycle we know that since 1896 this cycle has averaged 47 months in duration. The mid point of this cycle is therefore approximately 23 months. So, any cycle that tops out to the left of this center point is considered a left translated cycle and any cycle that tops out to the right of the center point is a right translated cycle. Of course the exact mid point is not actually known until a cycle has actually bottomed, but this can be used as a rough guide. I have found the 20 month mark to be a significant marker in regard to the 4-year cycle.
As a general rule, when dealing with cycles we can gain valuable insight that can help us with our price expectations if we understand the cycle translations and their meaning. Since 1896 there have been twenty-six completed 4-year cycles and we are now in the twenty-seventh. Of these cycles there has been twenty-one that occurred in a bullish right translated manner and five have occurred in a more bearish left translated manner. The current 4-year cycle is right translated as well. With the current 4-year cycle now in its 48th month and still pressing higher, we obviously have a right translation cycle. Cycle translations can be used to develop further expectations or projections for the decline down into the coming 4-year cycle low, which I cover in detail in the October newsletter. I will tell you that all of the declines that have followed these right translated 4-year cycles have been more than the modest 8.46% decline that occurred into the July low.
There are many other statistical factors concerning the 4-year cycle as I have only shared a few of them with you in the article above. Nonetheless, the data continues to tell me that the July low was definitely not the 4-year cycle low and that the market is still moving up into the 4-year cycle top. As a result, the decline into the 4-year cycle low still lies ahead. All the while most people are thinking that we have dodged the bullet of the 4-year cycle low, that it is no longer applicable or that it occurred in the summer. Nothing could be further from the truth. In any event, the euphoria now surrounding this advance has created a sense of wellness and confidence in the market that will cause the decline into the 4-year cycle low to catch the majority of the people off guard. In the meantime, this advance remains intact as it continues to push up into the 4-year cycle top and as a result the euphoria should continue to grow as the market moves into a climatic peak somewhere ahead.
If you are interested in a statistical and technical based source that utilizes Dow theory and provides statistical probabilities, then Cycles News & Views may be for you. I also provide web-based updates giving specific short and intermediate-term turn points on the stock market, gold, bonds and the dollar, utilizing my Trend and Cycle turn Indictors. The Trend and Cycle Turn Indicators keep us on track with specific turn points and guide us in regard to our longer-term forecasts. These indicators will be key in identifying the coming top. The October issue is now available and in it I give all of the updated statistical probabilities surrounding the 4-year cycle, which include specific time and price targets for the coming 4-year cycle low. A subscription also includes short-term updates three nights a week. Please see www.cyclesman.com
Tim W. Wood
© 2006 Tim Wood