Saturday, February 12, 2011

Does history repeat in the market? 2-11 (cont2)

Now I know some people look for similar chart formations (I believe they refer to them as fractals) to try and predict future stock action.  What is their rational in selecting date ranges?   If you are going to compare patterns then I believe you need a reason for selecting the the date ranges to compare.  I believe as good a reason as any is a similar alignment of dominant cycles.

In 2002 from Jul-Oct you had 3 dominant cycles bottoming.  They were the 10year cycle, the 41 month (Kitchin) cycle and the 2 year cycle.  Now the 10 year cycle should bottom again around Oct 2012.  Since the 10 year cycle is 120 months it is approximately three 41 month (Kitchin) cycles. Finally a 10 year cycle is the length of five 2 year cycles.  So based on rational one might expect 2000-2002 to look like 2010-2012.

And all things being equal that comparsion may have worked.  But on 9-11-2001 there was a non-cycle event that caused a sharp spike down which we cannot expect will be repeated this year. If we make allowances for that though we can make a stab at predicting how the next 20 months or so will look.

With this in mind I constructed a possible scenario for 2011- 2012 (thru Oct).  Here is that scenario (based on similar cycle alignment in 2001-2002 and 2011-2012:

This is for entertainment purposes only and should not be a basis for investment.  Only time will tell if it is even close to reality. It does illustrate though how the study of cycles can assist you in setting expectations and where the pitfalls may lie.     

No comments:

Post a Comment