Sunday, April 19, 2009

Bottom? Only if we've seen either the longest 4 year cycle low in history...

Or the shortest. For March to be the low and the end of the bear market it would also have to be a 4 year cycle low. I find that pretty unlikely and here's why.

The last confirmed 4 year cycle low occurred in Oct. 02. In January and March 08 all the signs that mark a four year cycle low occured. At that time the percentage of stocks on the NYSE above their 200 DMA dropped below 20%. Monthly MACD crossed over. We formed a quarterly swing high, etc.

If Jan./March 08 did in fact mark the four year cycle low like I think it did then it was the second longest four year cycle in history at 65 months. Only the 32 to 37 cycle stretched longer at 66 months.

For March 09 to be the bottom as as so many bulls are calling for, we would have to believe that either we've just seen the longest 4 year cycle low in history at 77 months (11 months longer than any other cycle) OR we would have to have seen the shortest four year cycle in history at only one year.

Both of those scenarios are so far out of the historical average that it seems pretty unlikely.

What seems more likely is that we did in fact get the last four year cycle low in Jan/ March of last year. The market then rallied into the May top for two months and is now working it's way down into the next four year cycle low due probably in the fall of 2010.

When the market rolled over in May and broke below the March lows last year it set up the most bearish left translated 4 year cycle in history.

I don't think this is over yet and unfortunately I think there is a lot more pain to come. Secular bear markets almost always end up going down much further than almost anyone can foresee. Just like bull markets go up much further than anyone can imagine.

I think the Dow has a lot further to fall and gold has a lot further to rise before this is over.