Stock Market Cycles
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every Saturday. When no change to text, [NC] will be used. Click for
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The stock market moves in various cycles. They are described
in Wikipedia. For
this website, there are two that will be used to try and understand
(predict) the market movement. There is an annual cycle where the market tends to move
up from late October to June (the Power Zone), and there is the
four-year Presidential Cycle. Money
on Wall Street also moves back and forth from the stock market to the
bond market depending on the greed and fear in the market place. This
will be tracked below.
Stock & Bond Cycles[NC]
The markets move on the perception by the traders as to the safety of
positions in the stock market. The bond market provides safety, but low
interest rates (as discussed on the Income page). The weekly
chart below shows this movement between markets using the relative
strength of the S&P 500 ETF (SPY) to the 20+ Year Treasury Bond
fund from iShares (TLT).
[NC] This relative strength (SPY:TLT) is shown in the top pane. The second
pane has two indicators, and the upper one determines the switch points
indicated by the vertical poles. This indicator is the 14-day CCI
signals are based on a cross below the 40 level for a switch to bonds,
and a cross above the -40 level to switch to stocks. Charts of the SPY
and TLT are shown in the lowest pane with arrows to show the favored
investment. These two charts are shown on a percentage scale to show
how much faster stocks move than bonds. Bonds do provide a capital gain
as well as monthly interest. These charts show the total return.
[NC] The switch to stocks that appeared to occur on 7/2 turned out to be false (indicated by the dashed pole).
The CCI did not get above 100, which would be normal in a rising stock
market. Sticking with bonds would have been better -- and safer.
Circuit Breaker Avoids Big Stock Market Drops
[NC] The Circuit-Breaker Sell signal
indicated a SELL on 5/31/2019. The previouse sell signal was on
20-year chart shows a weekly plot of the S&P 400 MidCap MDY with
a 90-week EMA, which works well with this ETF. It is a
Circuit-Breaker Sell and not a buy indicator. It avoided the
small drops of the 2003 to 2007 bull run and the 2010 drop. The cross-over
in 2011 occurred in August so Power Zone investors would be out of the
market anyway. One would delay market entry at the start of the Power Zone
until the price of MDY rises above the EMA.
[NC] The average third year of the presidential cycle (PY3)
is shown in the charts below, contrasted with all years. PY3 is, on
average, the strongest of the 4 years in the Presidential Cycle and most
of that strength occurs in the first 6 months of the year.
[NC] Since 1928, over all years, the SPX has been up 67% of
the time with an average yearly gain of 7.5%. During PY3 the SPX has
been up 81% of the time with an average yearly gain of 13.4%. The
best PY3 ever for the SPX was 1935 (+41.4%), the worst 1931 (-47.1%).
[NC] Since 1963, over all years, the OTC has been up 73% of the
time with an average yearly gain of 13.1%. During PY3 the OTC has
been up 86% time with an average gain of 29.7%. The best PY3 ever
for the OTC was 1999 (+85.6%), the worst 2011 (-1.8%).
[NC] Since 1979, over all years, the Russell 2000 (R2K) has been
up 69% of the time with an average yearly gain of 11.0%. During PY3
the R2K has been up 60% time with an average gain of 17.2%. The best
PY3 ever for the R2K was 2003 (+45.4%), the worst 1987 (-10.3%).
Thanks to Mike
Burk for the descriptions and
[NC] In 2011, the third year of the
presidential cycle produced the following gains and losses. These were
disappointing for any year!
- Dow Jones Industrials (DJIA) +5.5%
- S&P 500 (SPX) 0.0%
- Nasdaq (OTC) -1.8%
- Russell 2000 (R2K) -5.5%
[NC] In 2012, the fourth year of the
presidential cycle produced the following gains. These are much better
than the averages shown in the table.
- Dow Jones Industrials (DJIA) +7.3%
- S&P 500 (SPX) +13.4%
- Nasdaq (OTC) +15.9%
- Russell 2000 (R2K) +14.6%
[NC] In 2013, the first year of the presidential
cycle produced the following gains. Spectacular!
- Dow Jones Industrials (DJIA) +26.5% [Total return of 29.6%]
[Total return of 32.4%]
- Russell 2000 (R2K)
return of 38.7%]
[NC] In 2014, the second year of the
presidential cycle produced the following gains. These are better than
average for the second year.
- Dow Jones Industrials (DJIA) +7.5% [Total return
of DIA 9.8%]
return of SPY 13.5%]
- Nasdaq (OTC)
- Russell 2000 (R2K)
[Total return of IWM
[NC] In 2015, the third year of the
presidential cycle produced the following gains. This was not a good year.
Dividends did help as shown by the total return numbers.
- Dow Jones Industrials (DJIA) -2.23% [Total return
of DIA +0.11%]
[Total return of SPY +1.25%]
- Nasdaq (OTC)
- Russell 2000 (R2K)
[Total return of IWM
[NC] In 2016, the fourth year of the
presidential cycle produced the following gains. This was a crazy year
and the surprises are summarized in
this chart. Dividends did help and management costs
subtracted, as shown by the total return numbers of
- Dow Jones Industrials (DJIA) +13.42% [Total return
of DIA +13.52%]
- S&P 500 (SPX)
[Total return of SPY +9.64%]
- Russell 2000 (R2K)
return of IWM +19.64%]
Annual Seasonal Cycle & the Power Zone
[NC] Late October to May is the strongest time of the year for
the stock market -- the Power
Zone. Since 1950, the average daily return of the Dow
Industrials has been 27 times greater from October to May than the average
daily returns for the other five months (appreciation only).
Rebalancing a portfolio at the start and end of the Power Zone makes
[NC] May 18, 2019: A Health Sell
Alert occurred on Monday 5/13, which signals the end of the Power
Zone. During the typical third year of the presidential cycle,
the markets are good until mid-July. This year's price action is your
[NC] May 4, 2019: Should we go away in
May? Certainly not while the Health Buy Alert is in force.
This third year of the presidential cycle is normally powerful even
outside the power zone. According the the charts above, mid-July
might be the best time to "go away."
[NC] January 12, 2019: A Health Buy
Alert occurred on 1/10/2019, so the Power Zone is in effect. The market is
still in a bear trend, so caution is necessary.
[NC] October 27, 2018: The Power
Zone will begin when there is a Health Buy Alert.
[NC] June 30, 2018: The Power Zone is over as the there will
likely be a Health Sell Alert on Monday, 7/1. The unfavorable time of the
year is upon us. Note: There was no sell alert 7/1, but the
unfavorable time still stands.[NC] May 12, 2018: The Power Zone will be over when
a Health Sell Alert occurs. The Bull Cycle
September 30, 2017: The market has been moving up
dramatically with all indexes making new all-time highs on Friday
9/29. On 9/27, a dramatic 2.0% move in the Russell 2000 small-cap
index defined the start of the Power Zone. As shown in the bar chart
below, October is usually a very good month.
[NC] May 20,
2017: The Power Zone is over due to the -1.8% drop on Wednesday
5/17. Political uncertainty and the least good four months
of the year are upon us. Note the May 6 comments and chart
[NC] May 6,
2017: The Power Zone referred to in the analysis was based
on market action using a six-month Power Zone from November 1 through
April 30. The chart below shows the percentage of months over the last 20
years that were positive; and that the market
generally is not as good only in the summer months
of June, July, August and September. Arthur Hill of StockCharts.com,
who provided this chart, stated that on average, SPY closed higher just
52.7% of the time during these four months. Moreover, the ETF averaged a
1.1% loss over this stretch. Therefore, definition of the Power
Zone will generally be eight months long and start on October 1, if the
market is going up at that time. Mid-October has seen the
bottom of many major downswings.
On 11/5/16: "The Power Zone is likely to have started as
the market, as of November 4, 2016, is very oversold. The
uncertainty of the election has delayed its start." On 11/12:
November 4 was the bottom of the election fear drop. The Trump rally then
began the Power Zone.
[NC] The Power Zone referred to in
green below ended on April 28, 2016. This was dramatic on the Nasdaq
exchange with a -1.8% drop in two days. The recent high on the
Nasdaq was on April 18, and the S&P 500 peaked two days
last Power Zone started on Thursday October 22, 2015 when the S&P
500 had a large move on higher than normal volume. This was confirmed by
the Nasdaq which gapped up on Friday and closed +2.3%. There was a
Health Buy Alert on Monday 10/12.
- - - - - - - - - - -
[NC] Charts on how the various sectors do on a monthly basis can
be found here. Most are down in January and February. March and
April are good months, before the summer dead zone. Here are
of the S&P over each year. Move the slider
to get earlier years back to 1990. To get an average over five years,
click the bar chart icon in the lower left of the chart. Other
symbols can be observed also by entering them at the bottom.
[NC] The total return of the S&P 400 Mid-Cap MDY (red)
is shown on a 10-year log chart below. NOTE this chart ends
6/24/2016 when the data became too expensive. The Power
Zone System (red & green curve) shows the MDY fund
(red) when invested from November 1 through April 30 of
each year, and in a money-market fund (green) during the unfavorable time
of the year.
[NC] There were parts of three years when you
should have been out during the favorable time -- the 2007-2009 bear
market. Therefore, a Circuit-Breaker Sell Rule is needed for
this and any other longer-term strategy. One might consider a 90-week EMA
of the MDY (see second chart below). Most of the time the
transition to the (green) money-market was at a higher price than the year
before. The annualized returns for several funds from 4/28/2006 to
12/31/2013 are given below. The advantage gap between the two returns
narrowed significantly in 2013.
|S&P 400 Mid-Cap
|S&P 500 Large-Cap
Chart and data by FastTrack.net.
[NC] Jerry Minton has a slightly different favorable period,
which he calls the Power Zone. Click here to see all
the details. He says that "The principal cause of this skewing
effect is the behavior of investors in response to the overly optimistic
forecasts (for the next calendar year) of the army of highly paid,
respected, and confident "experts" pronouncing on everything from company
earnings to the stock market, GDP, interest rates, the price of oil, etc.
Most of the time these experts get it wrong and begin to revise their
earlier estimates downward during the following summer, thus producing the
May to November Dead Zone."
This page is for amusement only, and should not
be taken as advice to buy or sell