For quite a while I have been saying that the rally that began
in July has been driven by persistent bearishness among investors. I still think
this was a significant element, and it was encouraged by a strong belief that a
major decline would be occurring in October in conjunction with the long-awaited
4-Year Cycle trough. Unfortunately for the bears, it appears that the 4-Year
Cycle trough arrived early and without much fanfare (because the price decline
into the cycle low was not very impressive).
On our first chart we can see that the Cycle trough occurred after a mere 7.5%
decline and appeared in the form of a double bottom in June and July.
While the Cycle low was easy enough to spot on a one-year daily chart, it shows
up only as a small blip on the long-term monthly semi-log chart below. While it
clearly fits into the nominal 4-year periodicity, the decline was not nearly as
dramatic as many others in the past, and it is easy to see why many investors
were fooled into waiting for a deeper decline in the traditional October time
frame.
Assuming that my cycle assessment is correct (some will say that it isn't), and
assuming that the new 4-Year Cycle unfolds in a "textbook" fashion (it very well
may not), it is most likely that we have begun another up leg in the bull market
that will last for a few years. While that is a distinct possibility, I
personally will not count on it too heavily, because we can clearly see on the
chart above that some cycles are far from typical.
The cycle model can help explain current market action, and it can help us
anticipate future price moves; however, rather than try to predict the future, I
still find it best to let our trend-following tools/models point the way and
drive our decision-making. The table below shows the status of those models as
of Thursday.
This table is updated for subscribers every trading day in the Decision Point
Alert Daily Report.
Bottom Line: Many investors are still expecting a major decline later
this year, but I think that is unlikely because a new 4-Year Cycle is beginning.
Prices should remain in an up trend for several months, if the cycle unfolds in
a typical fashion.
Carl Swenlin is a self-taught technical analyst, who has been
involved in market analysis since 1981. A pioneer in the creation of online
technical resources, he is president and founder of
DecisionPoint.com, a premier
technical analysis website specializing in stock market indicators, charting,
and focused research reports. Mr. Swenlin is a member of the
Market Technicians Association.
