Stocks Exiting Danger Period
Stocks Exiting Danger Period;
5- & 10-Month Cycles Bullish
Jan./Feb. 2018 = Next Critical Peak.
10/31/17 INSIIDE Track:
Outlook 2017-201890/10 Rule
10-30-17 – As many markets vacillate through 2017 – showing the potential for a significant shift – it is a perfect time to review how these transitions often unfold. In many cases, it is an application of the 90/10 Rule – a more extreme variation of the 80/20 Rule or the Pareto Principle.
The 80/20 Rule is a ubiquitous principle in life, often associated with organizations and labor. For example, many businesses can attribute about 80% of their sales to 20% of their clients. That is why the principle is also sometimes referred to as the ‘law of the vital few’. It is also often applied to volunteer organizations (a little cynically) in which 80% of the work is often done by 20% of the volunteers.
One of the earlier-known applications of this rule – and the reason for one of its names (Pareto Principle) – was from an Italian economist named Vilfredo Pareto who observed that 80% of the land in Italy was owned by 20% of the population. His ‘Pareto Distribution’ principle expounded on that but generally surmised that in most societies 20% of the people control 80% of the wealth.
Cycles, Waves & Pareto
However, that is not how it is being applied here. Instead, the 80/20 Rule of Cycles – which is often more accurately the 90/10 Rule of Cycles – describes how 80 or 90% of an overall move often occurs during the final 20 or 10% of the cycle.
If a cycle is 4 – 5 months in duration, the majority of the move often occurs in the final ~4 weeks. And, the majority of that majority could unfold in about ~2 weeks (~10%). A perfect example occurred in August 2015, when the 17-Year Cycle of Stock Corrections was projecting a sharp drop in equities in the middle third of the year (similar to what had occurred during 1998 and 1981).
Some stocks and/or indexes peaked in late-April, some in May and some waited until June 2015 to summit (another prime example of the roller-coaster analogy, in which the entire train of cars cannot begin to accelerate down until the final car has peaked & reversed lower).
In late-June and throughout July, those indexes traced out a top – setting a brief sequence of lower highs. However, it was not until early-August that the final high ushered in the accelerated move down. And 80 – 90% of the decline occurred between Aug. 4 & Aug. 24, 2015. Most of that occurred in the final two weeks of that overall decline.
7-Year Cycles & Pareto
In another application of the fractal principle (see last issue), that stock market decline was the first phase – or an ‘A’ wave of a larger ‘A-B-C’ correction – of a larger-degree ‘20’ (as in 80/20)…
In 2013 – 2015, it had been observed that stocks had experienced sharp declines (‘crashes’ of 30 – 50% in a 1 – 3 year period) on a 7-Year Cycle basis – projecting a similar sell-off for 2015 – 2016. That would perpetuate a series that included the 2001 – 2002 & 2008 – 2009 drops (as well as a related 14-Year Cycle – tied to 1987/88 & 1973/74 – and a 42-Year Cycle linking the declines that culminated in 1974 & 1932).
Corroborating that, a related 7-Year Cycle portended a multi-year bottom for 2016 (7 years from 2009 low which was 7 years from 2002 low as well as the 14-Year Cycle that bottomed in 1988 & 1974 and the overlapping 42-Year Cycle that bottomed in 1974 & 1932). In the case of that 7-Year Cycle, the majority of the decline took hold between August 2015 & Feb. 2016 – the final ~10% of that 7-Year Cycle – affirming the 90/10 Rule of Cycles.
Dozens of stocks & indexes suffered 30 – 80% losses, leading into 2016 cycle lows, fulfilling those crash cycles. [Note: A multi-year low in 2016 does not alter the potential for a multi-year high in 2017, since the 80/20 Rule is likely to take hold again and delay the largest correction by a few years – allowing the 2016 low to hold for 2 – 4 years.]
40YC & 80/20 Rule
The 80/20 Rule has also been cited in 40-Year Cycle analysis described over the past 5 – 10 years. It is the reason that so much of the related activity occurs in that 8 – 9 year period, every 40 years (1773 – 1781, 1813 – 1821, 1853 – 1861, 1893 – 1901, 1933 – 1941 & 1973 – 1981 projecting focus on 2013 – 2021). 2013 – 2017 was expected to provide the initial (sometimes subtle or ‘under the radar’) actions with 2017 – 2021 providing the more obvious & overt reactions.
This principle applies to diverse cycles and to many markets but is often most pronounced in precious metals and equity markets – when so much of a dramatic move is condensed into a very small window of time. And, it also has a strong correlation to the Axiom on Market Correlation…
As stated in that Axiom, markets only follow other markets (in close lockstep) when the lead market is going parabolic or in an extreme phase. And when are so many markets going parabolic? During the final 10 or 20% of a governing cycle.
So, the 80/20 Rule provides a guide to when the Axiom on Market Correlation becomes pertinent…
A Different Perspective
So, when is that more likely?
There is a logical or deductive way to identify when these parabolic moves are more likely. It is near the end of an opposing cycle. In other words, if Gold is slowly & steadily building a base, an accelerated move to the upside is more likely just before an ensuing cycle high (the final 10% of that cycle).
With several monthly cycles converging in late-2017/early-2018 (see Gold & Silver analysis of recent months), that is a more likely time for one of those breakout moves. Culminating Silver cycles in 1Q 2018 may be pinpointing the most likely time.
That is intriguing when you also factor in Dollar cycles that continue to focus on March – May 2018 for the culmination of a second leg down. And, it dovetails with Stock Index analysis that has projected March 2018 to be the culmination of an initial leg down. Could Jan./Feb. 2018 trigger acceleration?
A Political Application?
Is it possible that these markets and their respective cycles are giving a clue as to when certain geopolitical events could unfold?
While dozens of various ‘events’ could fulfill that potential, the current landscape certainly begs for some attention to be paid to the ongoing Trump/ Russia investigation.
With the first indictments handed down from Robert Mueller & his team, that investigation has entered a more significant phase when momentum could suddenly accelerate at any time. Could the investigation reach a tipping point in 1Q 2018?
10/31/17 – Stock Indices remain positive, having suffered only moderate setbacks during the July–Oct./Nov. period. They continue to battle between competing cycles during this overriding 2015 – 2021 period. However, until price action signals a multi-month peak, the prevailing uptrends remain in force and should be respected…
With 2017 representing the volatile transition year – within the overall 2013 – 2021 40-Year Cycle shift – it pinpoints the year when the greatest amount of competing cycles collide as aging bulls trigger a final surge. As already explained, the 17-Year Cycle also portends a major top in 2017 (1966 high – 1983 high – 2000 high – 2017 high).
Leading into 2017, a series of highs was expected – the opposite of what was seen in 2014 – 2016 (when a series of lows unfolded, most notably on a 5-month & 10-month basis) – as a topping formation unfolds. Once those highs take hold, it was/is up to the weekly trends to identify if they can elevate to 3 – 6 month (or longer) highs OR simply give way to equal or higher highs during the next cycle.
Those weekly trends, as well as the intra-year trends, have remained a positive factor and need to be respected.”
Stock Indices remain positive, having only suffered minor corrections during initial danger periods. The next phase – in Feb./March 2018 could see intensification. The 10-Month Cycle – that already timed lows in Oct. ’14. Aug. ’15, June ’16 & Apr. ’17 – now projects an important peak for Feb. 2018. The corresponding 5-Month Cycle is very similar but projects a high between mid-Jan – mid-Feb. 2018. Price action will continue to govern, filter and/or hone these cycles and provide more specific expectations & strategies.
See Weekly Re-Lay & INSIIDE Track for additional details.