How do we define stock market cycles. Every year and so far I have not seen any exceptions even in bad years we have at least three chances to profit in trading a major stock index like SP500 DOW and ND100. Simply put, let's say that an intermediate stock market cycle has a starting point representing a low followed by a market rise thereafter that lasts long enough in time to consider it is a valid market cycle.
Let's see how it works in more details. With our Index trading system we measure the beginning of a stock market cycle by taking the last day touching the lower band before the market engages itself in an uptrend. With SP500 DOW and ND100 it is coinciding very often with the last Lower band Touch buy signal and the cycle that follows starts in a few days after that signal. Once we have a cycle started how do we know where that cycle will be valid and when is it ending. To have a valid cycle we need one of the two following conditions :
We need to count a minimum of 30 days from the last band touch including the day of the last band touch
The market posted a significant enough profit from the last band touch before we reach the 30 days count. We define a significant profit the following way. If the market moves from the last lower band touch more than 2 times the band size (width field at the top of the graphic display) we have a significant profit.
To better understand the mechanics let's take one example. We will take the SP500 for the first half of year 2000 as our first example. We can see in this example that our last lower band touch was on February 29th 2000. From that point on the market moves higher without coming back and we had our 30 days counter reached at April 10th 2000. At that time SP500 was still above the moving average. Also we had reached a significant profit before that day, on march 16th. Here is how precisely we calculate a significant profit target. We take the lower band value of our last lower band touch which was on February 29th (1349.48). We then take the band size (width value) which was 2.83. That means that the market has to move at least 5.66% before we can consider we have a significant profit. In our example that would then be above 1425.86. So on march 16th 2000 we had a close at 1458.47 way above that number. So if the market had pulled back under the moving average before 30 days we would had to close our position.
Here is a graphic example of this cycle
There is one interesting observation to make about intermediate stock market cycles. There is at least once a year a 10% plus gain in one of the three market cycles we always get. Usually this 10% gain occurs in the last quarter of the year (October - december). So if you have a year without a major gain (10% plus) and we had only 2 stock market cycles at the end of the year, this is a very nice opportunity presenting itself especially when we know that the last 2 months of the year are seasonnaly almost always profitable.
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