Weekend Report
by Dr Invest


There are many cycles in the market; there are daily, weekly, monthly, annual, and multi-annual cycles.

I have already demonstrated that by using SEASONAL CHARTS, you can identify annual trends. Understanding these trends are important to choosing the most favorable time to make investments.

Currently, using "market timing" is adversely received; yet, every reliable trading system uses "market timing" to maximize returns. One trading system noted, that as the trades made after the market closing were processed the next morning when the market opened, the market would spike (under a normal trending market) and then hit a morning low. Buying at the low point, provided a 2% or 3% profit. If you make even 2% a day for a month, you have gained 46%. Unfortunately, in the volatile market which now exists, the reliability of this market anomaly cannot be predicted. Every system uses "market timing" to provide an indication of the most favorable times to invest.

POSSIBLE LONG TERM TRENDS

This week-end, we want to look at some long-term trends in the S & P so we can identify cycles that could be favorable to our investment strategy.



The above chart provides an interesting look at the market cycles of the S&P since 1870. Clearly, there are some trends in place showing market cycles. Let's look at the year 2000 - till the present.



In each downturn, there have been three stages down. If we are not at the top of the second up cycle in the market, we are very near the top. The last downturn is very near in this cycle. Does that mean an immediate drop below the fall in March of 2009. Let me answer that, NO!

Using the above chart, the author suggests December of 2013, February of 2016, and December of 2019. So, although we have some helpful information, it is hard to see a clear direction.

Looking at the other examples, the high in a cyclic downtrend NEVER RISES ABOVE THE PREVIOUS HIGH. On one of these cyclic downturns, there was a FOURTH step down. (see: http://www.ritholtz.com/blog/2012/05/long-term-secular-cycles-on-sp/)

MY SPECULATION ON LONG-TERM CYCLIC TRENDS

Look, no one ultimately knows where the market is heading. If I knew where the market was heading, I would be worth BILLIONS, but the objective here is predict the general market movement and to adjust my portfolio as the market changes. Here is my best guess.

I don't think that we will see the market move toward a major uptrend in 2012. I do think that we will see the typical seasonal cycles with a progressively deteriorating market possibly until October. I do expect that, true to seasonal patterns, we will enjoy a return to a market uptrend from the end of October until the March of 2013.

I think that a strong drop in the market could occur in 2013, falling below the 2009 low on a third leg of downtrend. ONE OTHER OPTION is that the manipulation of the market by the FED will prolong our season in the cyclic downtrend and after another brief uptrend, we will experience a final FOURTH downtrend in 2016 or 2019.

KEEPING PERSPECTIVE

Markets are always going up and down. Markets are always going through cycles. It will be hard to see increases in your portfolio in a MARKET CYCLE that is in a downtrend, while using a BUY & HOLD method of investment.

The object is to identify when the market is likely to turndown and I think in the next few months a decline is in order. WORLD RECESSION can drive a continued downtrend if markets in China and Europe continue a march downward. The charts presented herein seem to point that we are nearing a downtrend. As always, we want to identify buying opportunities. BONDS will be they a safe harbor as stocks turn down in value.

If you want to know what I am doing at this time, read the blogs starting May 2nd. You will see how to diversify, how to invest in BOND ETFs (TIP and BND), and how reserve part of your portfolio for stock investments when the opportunity is favorable.

As you already know, any investment can loose value and there are no guarantees when it comes to investments. Each individual has different needs and different investment styles. You should seek professional investment advice; but by reading this blog you will have a better idea about what to ask you investment adviser.

(note: The above information is for entertainment purposes only and not to be used as investment advice.)