Stock Market Cycles
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.
[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 and the 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] BONDS are favored as of 1/24/2020. The switch to STOCKS that occurred the week ending 2/7/2020 was false (indicated by the dashed pole).
The Circuit-Breaker Sell signal
indicated a SELL on 2/28/2020. The previous signals were on 5/31/2019 and again on 8/23/2019. 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
fourth year of the presidential cycle (PY4) is shown in the charts
below, contrasted with all years. PY4 is, on average, fairly flat
in the first seven months of the year. Averaged over all years,
starting in the fourth week of January, the market does quite well
[NC] Since 1963, over all years, the OTC has been up 73% of
the time with an average annual gain of 13.5%. In the 4th year of the
Presidential Cycle the OTC has been up 79% time with an average annual
gain of 8.2% making it the 3rd best year of the 4 year cycle. The best
ever 4th year for the OTC was 1999 (+85.6%), the worst 2008
[NC] Since 1979, over all years, the Russell 2000 (R2K) has
been up 70% of the time with an average annual gain of 11.3%. In the
4th year of the Presidential Cycle the R2K has been up 70% time with an
average gain of 9.0% making it the 3rd best year of the 4 year cycle.
The best ever 4th year for the R2K was 2003 (+45.4%), the worst 2008
[NC] In 2011, the third year of the presidential cycle produced the following gains and losses. These were disappointing for any year!
[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.
[NC] In 2013, the first year of the presidential cycle produced the following gains. Spectacular!
[NC] In 2014, the second year of the presidential cycle produced the following gains. These are better than average for the second year.
[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.
[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 the ETFs.
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
March 6, 2020: The Circuit Breaker sell signal terminated the Power Zone.
[NC] October 26, 2019: The Power Zone began with a Health Buy Alert on Wednesday 10/23.
[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.
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.
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 charts 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] 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."