Tim Wood, CPA
1545 Gulf Shores Parkway, PMB # 251
Gulf Shores, AL 36542
504-208-9781
[Link]
1
Applying Trend Quantification to
Show Why We Now Appear to be
Facing a 1930 Scenario
The BIG Picture!
2
There is a dominate long-term cycle in the stock
market known as the 4-year cycle.
Cycles contract and expand, but since 1896 this
cycle has averaged 47.04 months in duration in the
DJIA.
Since 1896 there have been 28 completed 4-year
cycles. We are now in the 29th.
3
The 4-year cycle from 1896 to 1929
4
The 4-year cycle from 1929 to 1962
5
The 4-year cycle from 1962 to 1987
6
The 4-year cycle from 1987 to Present
7
We Know that October 2002
marked a 4-year Cycle low
8
Throughout 2006 and 2007 I
explained that the 4-year cycle
was extending
Odds suggest that the 4-year cycle did not
top until October 2007
9
Reasons
I’ve developed very specific “DNA Markers” that
have occurred at previous 4-year cycle tops and
bottoms
There were no indications of a top in 2006 and finally
in October 2007 these “DNA Markers” began to
indicate that the 4-year cycle had peaked
10
These Markers Include
• Dow Theory Non-Confirmation
• Downturn of monthly Trend Indicator on both
Industrials and Transports
• Formation of Quarterly Swing high on both
Industrials and Transports
• The extent of the decline. Min. ever seen 12.04%
• Fear as measured by Investors Intelligence
11
12
13
14
15
16
We Now Face One of Two
Possibilities
17
Either the 4-year cycle low
occurred in January 2008 and we
are now in a setup that has only
occurred one other time, which
was 1930…
18
OR
We have just witnessed the 4-year cycle
bottom and the longest 4-year cycle in
stock market history.
19
If the 4-year cycle bottomed in January, then we
are in a 1930’s style decline.
If the 4-year cycle just bottomed, then the
advance out of this low MUST, advance for
more than 20 months and it MUST better the
2007 high or else the statistics suggest still
lower prices.
20
Why 20 Months?
Because since 1896 there have been six 4-
year cycles that have topped in 20 months or
less
100% of these cycles have moved below
their previous 4-year cycle low
21
Why Must the Previous 4-year
cycle top be bettered?
Since 1896 there have been eight 4-year cycles
that have failed to move above their previous 4-
year cycle top.
One of these followed the 1932 low.
Excluding that cycle, the average decline by
this group of cycles has been 36.22%
22
23
Commodities
The Dominant cycle in the CRB is a 3-year
cycle
24
25
There have been four 3-year cycles that have topped in
19 months or less
This occurred in 1980, 1984, 1990 and 1997
In every case this marked a major top in commodities
and was followed by a decline below the previous 3-
year cycle low
26
The last 3-year cycle bottomed in January 2007
August 2008 marked the 19th month of the current
cycle
This cycle topped in July
Price has since moved below the previous 3-year
cycle low, making this the 5th occurrence in which a
3-year cycle that topped in 19 months or less has
moved below the previous 3-year cycle low.
27
What does this mean?
It means that lower prices will follow as we move forward into
the next 3-year cycle low and that any bounce should be a
counter-trend move.
28
Bigger Picture!
It appears we have entered into Kondratieff Winter
29
Sign Posts of K-Wave Winter
• “Global Stock Markets Enter Extended Bear Markets”
• “Trends During Winter: Stocks Down, Bonds Up,
Commodities Down”
• “Interest Rates Spike In Early Winter Then Decline
Throughout”
30
• “Economic Growth Slow or Negative During Much of
Winter”
• “Commercial and Residential Real Estate Prices Fall”
• “Bankruptcies Accelerate and High Debt Eliminated by
Bankruptcy”
• “Social Upheaval and Society Becomes Negative”
• “Banking System Shaken and New One Introduced”
31
• “Free Market System Blamed and Socialist Solutions
Offered”
• “National Fascist Political Tendencies”
• “Debt Level Very Low After Defaults and Bankruptcy”
• “Trade Conflict Worsen”
• “View of the Future at a Low Ebb”
• “New Work Ethics Develop Since Jobs are Scarce”
32
• “Greed is Purged from the System”
• “Real Estate Prices Find Bottom”
• “There is a Clean Economic Slate to Build On”
• “Investors are Very Conservative and Risk Averse”
• “Interest Rates and Prices Bottom”
• “A New Economy Begins to Emerge”
33
• “Stock Markets Reach Bottom and Begin New
Bull Markets”
34
Part II
The Dow theory
35
Dow Theory
William Peter Hamilton gives dates of Primary
Movements, according to Dow theory, on page
43 and 44 of the Stock Market Barometer.
These dates also reflect the upward and
downward movements of 4-year cycles.
36
The Early Bull & Bear Markets
1896 to 1921
In these early days of the Averages a
bull market, according to Dow
theory, was the upside piece of the 4-
year cycle and the bear markets were
the downside piece of the 4-year
cycle.
37
This began to change in 1921
The First Great Bull Market began in 1921 and
ran until 1929.
This was the longest Bull market period ever
experienced.
This was also the first time that multiple 4-year
cycles strung together to create an extended Bull
market.
38
The First Great Bull Market
Ran between 1921 and 1929
An eight year period that consisted of two 4-year cycles
This first great bull market advanced 568% from low to high.
39
The Second Great Bull Market
Ran between 1942 and 1966
A 24 year run and consisted of six 4-year cycles
This second great bull market advanced 1,076% from low to high
40
The Third Great Bull Market
Occurred between 1974 and 2007
A 33 year run and consisted of eight 4-year cycles
This third great bull market advanced over 2,274% from low to high
41
Bull Market Summary
The Bull Markets have grown in both price and time.
Originally, a Bull market was just the upside piece of a single 4-year cycle.
Then, the First Great Bull market had an 8 year duration consisting of two 4-year
cycles with an advance of 561%.
The Second Great Bull market advanced 1,076% and had a 24 year duration
consisting of six 4-year cycles.
The Third Great Bull market has advanced over 2,200% with a duration of 33 years
and consisted of eight 4-year cycles.
Each of these Great Bull market periods have grown in duration and have doubled the
previous Great Bull market’s advance.
42
The First Great Bear Market
Ran between 1929 and 1932
A 3 year period and a single 4-year cycle
(See the chart on page 39)
This Bear Market lasted 37 1/2% of the duration of the
preceding Bull Market.
43
The Second Great Bear Market
Ran between 1966 and 1974
An 8 year period and this time two 4-year cycles
(See the chart on page 40)
This Bear Market ran 33 1/3% of the duration of the
preceding Bull Market.
44
So, If we have truly Slipped into a Secular
Bear Market that will Correct the move up
from 1974
Then,
Based upon The Historical Bull and Bear
Market Relationships of the past, this Bear
Market is Expected to Run 10 to 11 years
45
Questions
46