Looking at the 4-Year Cycle chart below we can see that a cycle low is typically identified as an obvious price low accompanied by bottom on the monthly PMO that occurs shortly after the price low. Alas, it doesn't always work that way, and we have to guestimate the location of the cycle trough such as we did in 1986. In that case we have a slight price dip accompanied by a downward dimple in a rising PMO. The 1987 Crash is a more obvious place to declare a cycle trough, but we prefer to mark the spot where the trough ought to be so as to more or less maintain the equal nominal spacing between each trough. The reason for this is that the cycle tends to get back on schedule after periods where the cycle influence is not evident in price movement.
In rising markets there is not always a PMO bottom to help identify the cycle trough. As with 1986, only a PMO downward dimple in a rising PMO confirmed the trough in 1998 and 2005. The problem with the presumed 2005 cycle trough is that it was followed two-and-a-half years later in 2009 by a severe price low and the lowest PMO bottom since the 1932 price low. It looks a lot more like a 4-Year Cycle trough than the 2005 guestimate, but it is six years from the 2002 trough, and I am highly reluctant to change my current assumptions because history shows that cycles do tend to get back on schedule.
There are two conclusions we can draw at this point. First, it is possible that we have correctly identified the 2005 cycle trough, and that there will be another decline into significant price low by the end of this year. If that doesn't materialize, we will have to assume the current global financial catastrophe has knocked the cycle out of phase, and that there will be another 4-Year Cycle low toward the end of 2013. I wouldn't bet a paycheck on either one of those scenarios, and there are, of course, other possible outcomes. I hate to say it, but I think this one is going to have to be called after the fact.
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BIO: 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.
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