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JoeHentges
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I am an equity option and futures trader. I have been trading the markets since 1979. More about me on my website
My blog:
Beyond the Chart
My book:
7 Keys to Successful Option Trading
  • What Do 1973 And 2015 Have In Common? 5 comments
    May 7, 2014 10:00 PM | about stocks: MPEL, QIHU, BIDU, CTRP, YY

    (click to enlarge)1973 Mideast Oil Crisis...this was a common sign

    The 7 year cycle has caught my attention. Some folks look at cycle lows, I am now focused on cycle highs. Our current levitation act has me wondering about the cycle timing. So are 1973 and 2015 similar? Are they on the same cycle? Let's explore.

    There are all kinds of cycles at work in nature, in business and in the stock market. In the stock market there are 4 year presidential cycles, 7 year cycles, 13 year cycles, 20 year cycles and probably many, many others.

    Kondratieff Cycle

    And of course there's the big Kondratieff Cycle that no one talks about much anymore. But back in 1979 and 1980 everyone was buzzing about it. Why? Because it was a 50 year cycle and 1979 was 50 years after the 1929 crash. There were a lot of doom and gloomers back then.

    In reality the economy was going through a tough patch. A hard recession took hold in 1980-1982 as the Fed was fighting historic inflation. I had friends at Caterpillar and they said that units sales of earth moving equipment fell off on almost a mirror image of the sales drop off during 1929 to 1932. But no Great Depression replay occurred. A lot of pain and anguish. Many businesses were lost, including my father's business, but no Great Depression replay.

    A 7 Year Cycle

    So no big Kondratieff cycle but we did seem to be in a cycle. The stock market peaked in January 1966. This was the end of a dramatic multi-decade 3rd wave run from 1942. Now if I simply look at 7 year periods from 1966, I get 1973, 1980, 1987, 1994, 2001, 2008, 2015. It does get pretty interesting. Not all of these years correlate to market peaks that same year, but most are +/- one year.

    Robert Prechter of Elliott Wave International, looked at the 7.25 year cycle in "The Theorist", his monthly newsletter, back in 2004. His focus was on the cycle being tied to a significant crisis cycle. At the time that cycle predicted a major crisis for 2008, which of course we had. The interesting thing about cycles is that they can be influenced by larger cycles and sometimes they just stop.

    A Social Crisis

    In February 2012, Mr. Prechter again reviewed 7.25 year cycles from 1980. He noticed that the cycles seem to vary between 7 years, 1 month to 7 years 6 months. Although he was focusing on stock market bottoms, he also noticed that the stock market peaks tended to occur in the later part of the cycle. Right now a new cycle low would project to 2016.

    Now if you look at the sell-off from the 2000 high, the Dow took about 34 months to bottom in October 2002. From the October 2007 peak, it took 17 months to bottom in March 2009. So if I say June 2016 as a possible bottom ( 7 years and 3 months after March 2009) and back up 17 months, I get a peak in January 2015. If I use 34 months, it is a peak in October 2013. So that means we are in the red zone for topping if the 7.25 year bottoming cycle holds and a sell-off lasts between 34 and 17 months.

    Today in the Market

    It was a pretty volatile day again today. Opening up. then selling off and rallying again to close almost on the highs. Literally the reverse of yesterday. Putin has reportedly pulled the Russian troops back from the Ukraine border and urges a delay in any voting in east Ukraine. A Pentagon spokesperson said that there has been no Russian movement. So who knows?

    The MICEX index rallied strongly on the news. In tonight's video we look at the BRIC countries again with a focus on Russia and China. Along with the international theme I also take a look at the Baltic Dry Index to see what it might be telling us about the global economy.

    In Focus

    Stocks in focus tonight are the top 5 most active Chinese stocks today (of the ones I follow) : MPEL, QIHU, BIDU, CTRP and YY. On to the video.

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Comments (5)
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  • eremite
    , contributor
    Comments (46) | Send Message
     
    In 1973 my NYC apartment burned down, in 2015 I plan to set the Macau casinos on fire, figuratively speaking. Long MPEL. Plenty more answers to the title question, but I'm guessing no one will be amused.
    8 May, 05:15 AM Reply Like
  • JoeHentges
    , contributor
    Comments (52) | Send Message
     
    Author’s reply » Bummer on the apartment...sure seems like the Macau opportunity will be a great one going forward, casino stocks getting hurt this morning. I haven't checked yet, but my guess is something about Macau numbers...
    8 May, 09:13 AM Reply Like
  • t time
    , contributor
    Comments (206) | Send Message
     
    Should be good for gold then too, huh?
    8 May, 12:39 PM Reply Like
  • JoeHentges
    , contributor
    Comments (52) | Send Message
     
    Author’s reply » Good question. I have no idea. Gold topped in March 2008 and declined into October but then turned and took off higher. So maybe it will be good for gold.
    10 May, 07:01 PM Reply Like
  • eremite
    , contributor
    Comments (46) | Send Message
     
    Thanks for the commiseration Joe. While many people hold ETFs for their gold exposure, a lot of us are closely interested in the price of physical, not virtual, gold; it would be nice to see both numbers.

     

    And yes, the relation of gold ETFs to the gold spot price would be an interesting investigation. At this moment GLD is down .42% while Au is down .12%
    7 Jul, 12:24 PM Reply Like
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