Understanding Market Cycles Stan Harley West Coast Cycles Club June 26, 2012
Understanding Market Cycles
Stan Harley
West Coast Cycles Club
June 26, 2012
OUTLINE
• Focus on Cycles
• Cycles Derivation - Fibonacci Numbers
• (Fibonacci Series / √5) Unit Cycles
• 337.2 Week High-High Stock Market Cycles
• 215.4 Week / “Four-Year” Low-Low Cycles
• Current Markets: Stocks, Bonds, Precious Metals, Crude Oil, Housing, Unemployment
FOCUS ON CYCLES
Behind the wall the gods play; they play with numbers of which the universe is made up.
--- Le Corbusier
FIBONACCI SERIES
The Fibonacci series of numbers is one in which I often refer to in my market analysis. Fibonacci numbers are the numbers in the following sequence:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987…
The golden ratio is the limit of the ratios of successive terms of the Fibonacci sequence. Therefore, if a Fibonacci number is divided by its immediate predecessor in the sequence, the quotient approximates φ; e.g., 987/610 ≈ 1.61803279. These approximations are alternately lower and higher than φ, and converge on φ as the Fibonacci numbers increase. This equation has one positive solution in the algebraic irrational number φ = (1 + √5) / 2 = 1.618.
FIBONACCI SERIES
Derivation of Market Cycles
Fibonacci-Derived Market Cycles 39.8 = (89 / √5) 104.2 = (233 / √5) 168.6 = (377 / √5) 64.4 = (144 / √5) 128.8 = (64.4 * 2) 238.8 = (39.8 * 6) 79.6 = (39.8 * 2) 159.2 = (39.8 * 4) 272.8 = (610 / √5)
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, etc.
Stock Market – A Longer View
10 / 04 / 1 97408 / 10 / 1 979
06 / 15 / 1 98404 / 21 / 1 989
02 / 25 / 1 99401 / 01 / 1 999
11 / 07 / 2 00309 / 12 / 2 008
07 / 19 / 2 013
0
500
1000
1500
2000
P rice 54 M . A. 32 3 M .A. P roj 337 .2 W eek H igh
S&P 500 Weekly Genesis Point 04-Oct-74 Low
339 [337.2]
04/03/1981
08/25/1987 01/28/1994
09/01/2000 10/11/2007
Due 07/12/2013
334 [337.2]
335 [337.2]
344 [337.2]
371 [337.2]
337.2 Week High-to-High CyclesDerivation: (377 X 2) / (sqrt(5)) = 337.2
215.4 Week “Four-Year” Cycles Derivation: (377 / 7 = 215.4) Next Due: July 2015
Present Markets
• Stock Market
• Bonds
• Precious Metals
• Crude Oil
• U.S. Housing – Case Shiller Index
• Unemployment
Dow Jones Industrials
128.8 Trading Day (TD) Cycles Derivation: 64.4 = (144 / √5) 128.8 = (64.4 * 2)
26-Apr-10H
02-May-11H
05-Nov-10H
27-Oct-11H
01-May-12H
136 [128.8]
121 [128.8]
125 [128.8]
127 [128.8]
26-Apr-10H
105 [104.2]
130 [128.8]
42 [39.8]
69 [69.4]
63 [64.4]
39 [39.8]
Fibonacci-Derived Market Cycles 39.8 = (89 / √5) 104.2 = (233 / √5) 168.6 = (377 / √5) 64.4 = (144 / √5) 128.8 = (64.4 * 2) 238.8 = (39.8 * 6) 79.6 = (39.8 * 2) 159.2 = (39.8 * 4) 272.8 = (610 / √5)
37 [39.8]
02-May-11H
02-Apr-12H
S&P 500 – Next Projected Highs and Lows
Next Projected High: 02-Apr-12H + 64.4 TDs = 03-Jul-2012
Next Projected Low: 04-Jun-12L + 39.8 TDs = 31-Jul-2012
Bonds
Gold – Major Top
West Texas Intermediate Crude
West Texas Intermediate Crude
1.5
Jan -46M a r-5 0
M a y-54Jul-58
S ep-62N ov -66
Jan -71M a r-7 5
M a y-79Jul-83
S ep-87N ov -91
Jan -96M a r-0 0
M a y-04Jul-08
S ep-12
1
150
12.5
25
50
100
1
S pot O il P ric e P roj 159 .2 M on th Low
West Texas Intermediate Crude
Next Due October 2012
159.2 Month Cycles Derivation: (89 / √5) = 39.8 39.8 X 4 = 159.2
U.S. Housing Market
Jan uary 19 87M a rch 19 91
M a y 19 95July 199 9
S eptembe r 2 003N ov embe r 2 007
Jan uary 20 12M a rch 20 16
50
100
150
200
250
P rice In dex
Case Shiller Home Price Index1 0 -City Co m p o site June 2006
236
October 1989 36
190 [199]
Feb 1994 88
148 [144]
34 [34]
Feb 1996 79.6 Month Low 112
December 2001 79.6 Month Low 182
April 2009 79.6 Month Low 270
76 [79.6]
[44.5]
[79.6]
Jan 2013 315
79.6 Month Cycle Low Due December 2015 350
Data Through March 2012 Not Seasonally Adjusted
19 48 19 53 19 58 19 63 19 68 19 73 19 78 19 83 19 88 19 93 19 98 20 03 20 08 20 13
2
3
4
5
6
7
8
9
10
11
12
U ne mployme nt R a te P roj. 12 8 .8 M o nth Cyc le
Bureau of Labor Statistics Unemployment Rate (Seasonally Adjusted)D a t a I n v e rte d
Oct 1949
May 1961
Dec 1982
Jun 1992
Jun 2003
Mar 2007
Mar 1989
May 1969
Jun 1953
Aug 1971
191 238 216
Oct 2009 132[128.8]
114[128.8]
136 [128.8]
123[128.8]
139[128.8]
76 [79.6] 0.618
You Have to Work Very Hard to Make Easy Money
The Happiest Time in a Man’s Life is When He is in Red-Hot Pursuit of a Dollar With a Reasonable Prospect of Overtaking It.
--- Josh Billings