Chapter 9. Temporal Patterns and Cycles

Chapter Objectives

By the end of this chapter, you should be familiar with The long (50-60-year) Kondratieff wave cycle The 34-year cycle The decennial cycle Four-year cycles, including the election year pattern Seasonal tendencies in stock performance The relationship between January stock market performance and the rest of the year The relationship between events and stock market performance

In the previous two chapters, we looked at ways to measure the sentiment of market players and the internal strength of the stock market. In those chapters, we saw that the market alternates between periods of strength and weakness. A major market cycle appears when market players become more and more optimistic, sometimes to a point of euphoria, followed by a period of market weakness, which is associated with increasing investor fear and panic. Seeing how this is a repeated pattern, some analysts have focused their attention on attempting to predict these patterns using cycle theory that is often similar to the cycle theory of the natural scientists. In Chapter 19, “Cycles,” we cover how to analyze market data of unconventional cycles, but we now look at cycles appearing to occur for understandable reasons.