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On June 14, 2010, we wrote an article titled "A Market Cycle Worth Observing." In that article, we proposed that there was significant validity in the belief that the stock market ebbs and flows in a 4 to 4 ½ year cycle.

In an effort to make our point, we provided examples from Charles H. Dow, co-founder of the Wall Street Journal, and Richard Russell editor of the Dow Theory Letters. The examples were drawn from the late 19th and 20th century. The purpose of connecting such disparate periods was to show that regardless of the change in times, some attributes of the stock market remain intact.

April 2010 Dow Projection Analysis

In our closing paragraph on the 4-year cycle we said the following:

"If my observations on this topic are correct, then we have at least until January 2011 to June 2011 before the half cycle is complete. Afterwards, the market would either trade in a range or establish a well-defined bottom in accordance with the 4 to 4 ½ year market cycle."

Our article of June 14, 2010 came after an -11% decline in the Dow Jones Industrial Average. Subsequent market action led to the Dow Jones Industrial Average rising +25.71%. Coincidentally, the Dow Industrials peaked on April 29, 2011 at 12,810.54 with two failed attempts at reaching new highs in July 2011.

Because we’re within 9 months of the second half of the 4-year cycle, we believe that there is approximately another year to go of the stock market continuing to trade in a range or reaching an ultimate low.

For the market to trade in a range we expect that the Dow Jones Industrial Average does not exceed the high of 12.810.54 by more than 10% while not falling below 10,655.30. If both the Dow Industrials and Dow Transports exceed their respective highs we would view such action as a new cyclical bull market. Our downside target for an ultimate low on the Dow Jones Industrial Average is tentatively set at 8,540.36.

Although giving our prognostication one year in advance (as indicated in an April 2010 posting below), we were off by only one month for the last peak in the market. Furthermore, the evidence suggests that the 4-year cycle is still in play. We feel that an appropriate investing strategy can be constructed around this concept. If investing in stocks is a must, then we’d recommend considering the relatively undervalued current and former dividend increasing stocks from our latest dividend list below.

Symbol

Name

Price

P/E

EPS

% Yield

Price/Book

% from Low

TR

Tootsie Roll

23.77

32.82

0.72

1.4

2.03

4.12%

BCR

C.R. Bard, Inc.

85.81

22.05

3.89

0.9

3.96

6.14%

BDX

Becton, Dickinson

74.24

13.22

5.62

2.5

3.26

6.70%

JW.A

John Wiley & Sons

44.77

15.7

2.85

1.8

2.66

6.88%

CWT

California Water Service

17.83

18.29

0.98

3.4

1.64

7.09%

OMI

Owens & Minor

27.8

15.61

1.78

2.9

1.93

7.46%

CLX

Clorox Company

67.76

19.54

3.47

3.6

-116.98

8.64%

WST

West Pharmaceutical

38.55

21.28

1.81

1.9

1.85

8.73%

FRS

Frisch's Restaurants

20.27

22.93

0.88

3.3

0.8

9.92%

Source: 4-Year Market Cycle Update