Understanding Market Cycles

Stan Harley

West Coast Cycles Club

June 26, 2012

OUTLINE

•  Focus on Cycles

•  Cycles Derivation - Fibonacci Numbers

•  (Fibonacci Series / √5) Unit Cycles

•  337.2 Week High-High Stock Market Cycles

•  215.4 Week / “Four-Year” Low-Low Cycles

•  Current Markets: Stocks, Bonds, Precious Metals, Crude Oil, Housing, Unemployment

FOCUS ON CYCLES

Behind the wall the gods play; they play with numbers of which the universe is made up.

--- Le Corbusier

FIBONACCI SERIES

The Fibonacci series of numbers is one in which I often refer to in my market analysis. Fibonacci numbers are the numbers in the following sequence:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987…

The golden ratio is the limit of the ratios of successive terms of the Fibonacci sequence. Therefore, if a Fibonacci number is divided by its immediate predecessor in the sequence, the quotient approximates φ; e.g., 987/610 ≈ 1.61803279. These approximations are alternately lower and higher than φ, and converge on φ as the Fibonacci numbers increase. This equation has one positive solution in the algebraic irrational number φ = (1 + √5) / 2 = 1.618.

FIBONACCI SERIES

Derivation of Market Cycles

Fibonacci-Derived Market Cycles 39.8 = (89 / √5) 104.2 = (233 / √5) 168.6 = (377 / √5) 64.4 = (144 / √5) 128.8 = (64.4 * 2) 238.8 = (39.8 * 6) 79.6 = (39.8 * 2) 159.2 = (39.8 * 4) 272.8 = (610 / √5)

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, etc.

Stock Market – A Longer View

10 / 04 / 1 97408 / 10 / 1 979

06 / 15 / 1 98404 / 21 / 1 989

02 / 25 / 1 99401 / 01 / 1 999

11 / 07 / 2 00309 / 12 / 2 008

07 / 19 / 2 013

0

500

1000

1500

2000

P rice 54 M . A. 32 3 M .A. P roj 337 .2 W eek H igh

S&P 500 Weekly Genesis Point 04-Oct-74 Low

339 [337.2]

04/03/1981

08/25/1987 01/28/1994

09/01/2000 10/11/2007

Due 07/12/2013

334 [337.2]

335 [337.2]

344 [337.2]

371 [337.2]

337.2 Week High-to-High CyclesDerivation: (377 X 2) / (sqrt(5)) = 337.2

215.4 Week “Four-Year” Cycles Derivation: (377 / 7 = 215.4) Next Due: July 2015

Present Markets

• Stock Market

• Bonds

• Precious Metals

• Crude Oil

• U.S. Housing – Case Shiller Index

• Unemployment

Dow Jones Industrials

128.8 Trading Day (TD) Cycles Derivation: 64.4 = (144 / √5) 128.8 = (64.4 * 2)

26-Apr-10H

02-May-11H

05-Nov-10H

27-Oct-11H

01-May-12H

136 [128.8]

121 [128.8]

125 [128.8]

127 [128.8]

26-Apr-10H

105 [104.2]

130 [128.8]

42 [39.8]

69 [69.4]

63 [64.4]

39 [39.8]

Fibonacci-Derived Market Cycles 39.8 = (89 / √5) 104.2 = (233 / √5) 168.6 = (377 / √5) 64.4 = (144 / √5) 128.8 = (64.4 * 2) 238.8 = (39.8 * 6) 79.6 = (39.8 * 2) 159.2 = (39.8 * 4) 272.8 = (610 / √5)

37 [39.8]

02-May-11H

02-Apr-12H

S&P 500 – Next Projected Highs and Lows

Next Projected High: 02-Apr-12H + 64.4 TDs = 03-Jul-2012

Next Projected Low: 04-Jun-12L + 39.8 TDs = 31-Jul-2012

Bonds

Gold – Major Top

West Texas Intermediate Crude

West Texas Intermediate Crude

1.5

Jan -46M a r-5 0

M a y-54Jul-58

S ep-62N ov -66

Jan -71M a r-7 5

M a y-79Jul-83

S ep-87N ov -91

Jan -96M a r-0 0

M a y-04Jul-08

S ep-12

1

150

12.5

25

50

100

1

S pot O il P ric e P roj 159 .2 M on th Low

West Texas Intermediate Crude

Next Due October 2012

159.2 Month Cycles Derivation: (89 / √5) = 39.8 39.8 X 4 = 159.2

U.S. Housing Market

Jan uary 19 87M a rch 19 91

M a y 19 95July 199 9

S eptembe r 2 003N ov embe r 2 007

Jan uary 20 12M a rch 20 16

50

100

150

200

250

P rice In dex

Case Shiller Home Price Index1 0 -City Co m p o site June 2006

236

October 1989 36

190 [199]

Feb 1994 88

148 [144]

34 [34]

Feb 1996 79.6 Month Low 112

December 2001 79.6 Month Low 182

April 2009 79.6 Month Low 270

76 [79.6]

[44.5]

[79.6]

Jan 2013 315

79.6 Month Cycle Low Due December 2015 350

Data Through March 2012 Not Seasonally Adjusted

19 48 19 53 19 58 19 63 19 68 19 73 19 78 19 83 19 88 19 93 19 98 20 03 20 08 20 13

2

3

4

5

6

7

8

9

10

11

12

U ne mployme nt R a te P roj. 12 8 .8 M o nth Cyc le

Bureau of Labor Statistics Unemployment Rate (Seasonally Adjusted)D a t a I n v e rte d

Oct 1949

May 1961

Dec 1982

Jun 1992

Jun 2003

Mar 2007

Mar 1989

May 1969

Jun 1953

Aug 1971

191 238 216

Oct 2009 132[128.8]

114[128.8]

136 [128.8]

123[128.8]

139[128.8]

76 [79.6] 0.618

You Have to Work Very Hard to Make Easy Money

The Happiest Time in a Man’s Life is When He is in Red-Hot Pursuit of a Dollar With a Reasonable Prospect of Overtaking It.

--- Josh Billings