10 April 2013

Balenthiran, The 17.6 Year Stock Market Cycle

The profile of a bull market cycle resembles an Elliott Wave sequence, although Balenthiran notes that, in contrast to Elliott Waves, his cycle “has distinct phases of fixed time and direction” and “is not trying to determine by how much the stock market may increase or decrease in that time.” (p. 30) Nonetheless, his bull market cycle has an initial leg up lasting four to five years, a sharp correction lasting one to two years, another rally lasting four to five years, a mild mid-cycle correction, and finally a major bull market top. In his stylized version, the rough 4-5 and 1-2 figures get turned into more exact numbers: 4.4 and 2.2 years.

The bear market cycle is more complex. It starts with a bear market crash lasting approximately two years, is followed by a rally lasting four to five years, a second bear market crash lasting around two years (often, he claims, the lowest low), a two-year bear market rally, a major bear market low (not necessarily the lowest low), a final bear market low, and finally the end of the bear market cycle.

So, what can we expect? The current bear market should end in 2018, with the final low coming this year. This low is “not likely to be lower than that seen in 2009, but ideally below the 2011 high.” (p. 57) This may be a good entry point for the new bull market even though it comes five years before the start of the next long-cycle bull market.

Perhaps this is what all the money sitting on the sidelines is waiting for