Saturday, December 31, 2011

The outlook for 2012

In 2012 we start what many refer to as the K-Wave winter.  That is expected to last 3-5 years.  Of course, if we pull a Japan and keep propping up failed corporations and  providing "stimulus" (QE3-QEn) it could last much longer than 3-5 years. 

Recently I discussed the longer cycles:
  • The 120 year Grand (Mega) Super cycle which last bottomed in the early 1890s with many bank failures (pre FED), high unemployment and workers rioting in the streets.  It could be called a Depression, but since there was little government interference it was severe and recovery was fairly quick say compared to the 1930s.  If we use 1892 as the start of that then 2012 is 120 years.
  • Then there is the Super Cycle  (the economic cycle is called the K-Wave) of 60 years.  The last bottom according to experts was around 1952 after the end of the Korean War.  We had a nicely expanding economy in the 50s and a good part of the 60s after this cycle bottomed.  It is now 2012 (60 years later).  This cycle varies from 56-64 years with 60 years being the average.  So it could have up to 4 years left to a bottom.
  • Then there is the Mini Super Cycle of 30 years.  Last bottom around 1982. Add 30 to 1982 and you have 2012.  Government intervention may have pushed the next bottom forward a couple of years.
  • Then there is the 6 year cycle which probably topped in May of 2011.
So we have "at least" 4 longer term cycles which are in a down phase and should push to a bottom over the next 2-3 years.  No one knows for sure how far down this will push the economy or the stock markets.  It could be a lot!!!  There is a lot of debt out there (sovereign, corporate, individual) that will not (can not) be repaid and will have to be written off.  This reduction of assets on balance sheets should result in deflation.  Expect a lot of financial pain and panic over the next 3 or so years and expect it to start in 2012.  Europe is a mess, emerging markets are starting to see slower growth and government debt keeps growing.  This is not a recipe for economic growth.

This is the BIG picture the stock markets will be operating in - in 2012.  There will be downside pressure all year from these longer cycles.  Still we trade in shorter time frames and there should be ample volatility for those nimble enough to take advantage.  Nothing is ever sure - so it is probably a good idea to always have longs/shorts to hedge and sell longs on moves up and buy back on pullbacks.  You lighten up on shorts on pullbacks and increase them on rallies.

So using the Wall Cycle (142 days, 100TDs, 20 weeks) I have tried to provide you a general outlook for the coming year.  We should see a bottom by mid January, a top  mid to late March, a bottom in early June, a top in mid August, a bottom in mid October and finally a top around Christmas.  Now each Wall cycle is composed of quarter Wall cycles (around 25 TDs - a lunar cycle or 22.5TD cycle?) that will give you some shorter time frames for trading.  It is those shorter time frames we will look at on a weekly or daily basis.

Keep in mind the longer term bias should be down for 2012 so we could be down 10%, 20% or 50% for the year. Here is a chart (projection) for 2012 of the shorter Wall cycles with Bradley turn dates noted:

Hope you have a profitable 2012.  2011 could have been better, but at least for me it was better than 0.5% in a savings account.



  1. Inlet,

    I wanted to thank you for all your hard work and despite the pending "K-winter", I am looking forward to the new year.

    Overall, my trading account ended up with a small gain. It would of been better if I didn't burn up my winnings by trying contrarian-type plays.

    Hope you have a great 2012.

  2. Doctrader - I try and not be overly "doom and gloom" as regards the longer cycles. I do believe they should be considered in shaping your overall approach to trading. Maybe a bit more short than long over the coming year?

    The past year was a challenge. To me the largest challenge seemed to be the large open gaps which meant you often missed out on the trade.

    GL and a profitable 2012.

  3. Inlet - I am new to cycles, so essentially learning about it from your blog. So, big thank you for the reat work.

    I wanted to know whether your Juglar and Kitchin Cycles bottom mid 2012? The UBS TA team ( is calling for bottom June/July 2012 based on these and decennial cycles.I wanted to know what your opinion is.

  4. FX trader - I just posted on this subject and referenced an article, so your comment was very timely. If the Kitchin cycle bottom happens when expected then it should bottom in the Aug-Sep time frame. Supposedly the last bottom was early March 2009 so 42 months (3.5 Years) puts you into early September.