EDIT: This post has sparked a good deal of heated reaction by email. I should explain that this post is not presented in the spirit of being a market call or an absolute forecast. My analysis process is to consider all the possibilities, and to stir up some debate. I do believe that through discussion and consideration of different possibilities we can improve our understanding of what is happening in the markets, and trade more profitably. Please accept the post therefore in the spirit of an interesting idea that I present for discussion. It is not a sworn statement of my conviction!
This is going to be a very quick post. The town of Mogliano in Italy where I live has embraced the entirely non-Italian festival of Halloween in an entirely Italian way, with great enthusiasm. As I write this, local volunteers are setting up large pumpkins in my office windows and trying to plug things into my UPS, the better to frighten the thousands of people from nearby towns who will be coming here this evening to be scared.
Last week I discussed the possibility that the October 2014 trough was of 18-month magnitude, and as the US markets all reached up to new highs today it seems most likely that it was indeed an 18-month cycle trough.
While I am mostly a bit of a Hurst purist, I have occasionally suggested some unconventional ideas, and one of them is that there seems to have been a fairly regular 6-year cycle in the stock markets recently. I have written about this before in various forms, and when I was writing last week’s post I toyed with the idea of showing you an update on that 6-year cycle idea, because of course the October 2014 trough completed the fourth 18-month cycle since March 2009 … which means that if there is a 6-year cycle, the October trough is also a 6-year cycle trough.
I thought it better to focus on a single discussion last week, which allows me to present this fairly “spooky” idea today. First of all here is an analysis using the traditional Hurst nominal model which has a 3:1 harmonic ratio between the 18-month cycle and the 54-month cycle:
Now here is a chart which includes a 6-year cycle:
As unorthodox as that is, it has a better “look” to it. I would love to hear what you think about it. Is it possible that we are bouncing out of a 6-year cycle trough? (Even if that 6-year cycle is only a harmonic echo caused by the 18-year and 18-month cycles)
Why is this a “spooky” thought? Because it means that there is lot more upside to the already impossibly long bull run that we have been enjoying. Just as I was turning long-term bearish, I’m wondering whether the bear isn’t another few years away? We might be in for a few more years of bullishness!