I'm no master at cycles but even a dumby like myself can sometimes spot the obvious. The four year cycle in the stock market has been around for about the last 100 years or so. I've noted the last five cycle bottoms on the chart. During a multi year secular bull market most of the 4 year cycle tops tend to be extremely right translated. All that means is that the top tends to form very far into the 4 year cycle. Examples 87, 90, 98 and it looks like this 4 year cycle will also be extremely right translated. These cycles tend to be short and vicious but they also tend to be corrected fairly quickly. Ex. 90 & 98. The cycles that do the real damage tend to be the ones that are left translated. Ex. the cycle that topped in 2000. It just bled investors to death for almost 2 1/2 years and has taken 5 years to recover from. The current cycle will most likely be the quick nasty type. These usually result from some kind of scare that seems much worse than it really is thus the market recovers rather quickly when it comes to it's senses. The left translated cycles are normally a sign of a deteriorating business climate. Ex. the spike in energy in 2000 coupled with the fact that the market had to grasp the fact that many dot.coms were never going to make the kind of money it would take to justify the valuations at the time. Then of course 9/11 dealt a serious blow to the economy. What transpired was a slow death of sinking stock valuations followed by sharp counter trend rallies that would inspire just enough hope to keep most investors holding and hoping.
I suspect this 4 year cycle low will be similar to 98 short and nasty. Heck we may have seen the lows already and then again maybe not. However when we do put in a bottom I don't think it will take the market long to gain it all back. Just look at last week for instance. It only took the market 3 days to gain back over half the losses that it took 3 weeks to lose. However I also suspect that the next cycle will be a left translated cycle and will do some serious damage similar to the 73-74 scenario. I also have a feeling it will be brought on by a surge in inflation specifically energy prices. If the Fed ends up lowering rates to appease the politicians they will be laying the groundwork for increasing inflation in the coming years. If so then we can start getting used to even higher commodity prices and stagnating growth. Hmm...I think I'll buy some more silver and gold now that I've just scared the bjesus out of myself.
Gold Miners - What next?
7 months ago