The "Presidential Cycle" and its effects
It's 2002 and the 4-year "Presidential Cycle" is due to bottom in
November. With this important investment cycle now in the "hard down" phase for the next eight months it promises to be an exhilarating ride on the Wall
Street roller coaster from now until then.
Already we have witnessed the set-up to the next ride down from the
latest market peak, as the 8-week and 12-week cycle and 20-week cycle bottoms produced the impressive March rally over the past two weeks. But it's now time for the more dominant longer-term cycles to kick in and largely fulfill our long-standing forecast of a nasty Year 2002 for stock prices. This event will be the product of the combined 2-year, 4-year and 12-year (4-year cycle X 3) cycles all bottoming late in the year (all three of these cycles are harmonically related and a part of the 120-year "Master Cycle" series which bottoms in 2014).
Although the term "Presidential Cycle" is commonly used among market
forecasters, few outside of the market technicians really have a grasp of
what it is and how it effects stock prices. For an understanding of this
extremely important cycle (also known as the "Business Cycle") let's see what other experts have written about it.
Louise McWhirter wrote in her 1938 book, "McWhirter's Theory of Stock
Market Forecasting": "The rise and fall of price is governed by the law of
Supply and Demand, which is in turn governed by the law of the universe,
hitherto unknown or ignored, but known as the law of Action and Reaction.
Periods of business prosperity and depression are not man-made nor the result of chance.; they come at regular intervals, the same as the seasons, and the same [universal] laws which govern nature govern man and all man's
activities." In this comment, McWhirter lays the foundation for our
understanding of the inherent nature of all market cycles and of the
operation of the market itself, namely that of action and reaction, impulse
and correction, buying and selling, supply and demand. This concept of
action and reaction is a product of the idealized market cycle, which is
composed of two equal parts - an ascending phase and a descending phase.
The 4-year Business Cycle, or Presidential Cycle, peaks after a 2-year
ascent, then falls for an equal two-year declining phase. The Presidential
Cycle is so named because it closely corresponds to the state of business and the economy in its relation to presidential politics and White House
elections.
Richard Hoskins, author of "War Cycles/Peace Cycles," was one of the first observers to publish a chart which graphically depicted the 4-year cycle in the Dow Jones Industrial Average. He writes, "Every four years the stock market bottoms. Two years later near election day it peaks. Just knowing that gives you a whopping edge."
Continuing, he writes, "Pump money in to make things look good and after
the election cut it off. Observe the years 1974, '78, '82, '90, '94 and '98
- all except '86, which occurred a year later. All the rest are market
bottoms. Every four years - market bottoms! In the interest-free system of our ancestors there was no such thing as booms and busts such as we see
today. But in a usury system where the usurers manipulate the economy to
elect their hand-picked politicians, you have inflations and deflations to
coincide with elections.
"Congress appropriates money. The president spends it at the time most
advantageous for him, just before election. This causes the stock market to
rise making voters happy on election day. With the money all spent, after
the election the stock market crashes. A new four-year election cycle then
starts all over again. If you didn't know this, you may have been fooled
into selling at the bottom when others were buying, or buying at the top
along about election day when others were selling."
Yet another relative of the 4-year Presidential Cycle (though less
famous) is the 20-year "Assassination Cycle." Cycle expert L.J. Jensen noted in 1935 that since the 19th century, every U.S. President who was elected in the following periods either died in office or an assassination attempt was made:
1840 - Harrison, 1860 - Lincoln, 1880 - Garfield, 1900 - McKinley, 1920 -
Harding, 1940 - Roosevelt, 1960 - Kennedy, 1980 - Reagan, 2000 - Bush?
The explanations for this eerily recurring phenomenon range from the
expansion and contraction of the economy and its consequential effects on
mass social and political sentiment (i.e., declines in economic prosperity
forces the need for change on the political front) to the threat that
Presidents sometimes pose to the debt/usury system in wanting to either
abolish the usury banking system or cancel the national debt. Presidents are
typically sacrificed on the high altar of mammon and this important 20-year
cycle always brings with it major and profound changes to the country's
social and economic structure. If this cycle holds true and history
continues to repeat, then sometime between now and 2004 - perhaps even this year - we can expect an assassination attempt to be made on the life of
President Bush (though God forbid that it should be so).
Not only will the market be at the mercy of the forces of the 4-year and
12-year (not to mention 20-year) cycles, but the long-wave economic cycle
itself, the K-Wave," is also in the descending phase at this time and will
begin exerting tremendous pressure against the markets over the next couple of years. The K-wave is essentially five (5) Presidential 4-year cycles in a row to form one complete long-wave economic cycle.
Samuel "Bud" Kress, editor of SineScope, poses some intriguing questions
and answers regarding the current long-term cycle configurations and where
our current position is with respect to them. In a recent market note he
writes, "What will the market's potential configuration be for the 7-year
period from the end of the first bear market around 2004 until the beginning of the second bear market around 2011? This will be a function of the K-Wave." Its previous bottom was the late 1940s/early 1950s. Typically, it should bottom between 2004-2006. However, since the great depression of the 1930s with the New Deal, government has consistently intervened with efforts to manipulate the economy. The last event bureaucrats want to develop is to have their tax base go south. On the other hand, if natural forces prevail and the K-Wave bottoms in 2004-6, this would imply an economic contraction of 4-6 years. It is interesting to note that the depth of the depression occurred in 1934, 5 years after the market crash of 1929.
The Presidential Cycle, and its long-term counterparts, can be highly useful aids to our trading and investing strategies and can help us to avoid pitfalls commonly associated with secular bear markets, such as the one we are now in. The cycles are telling us that the next 2-4 years ahead will be
extremely bumpy ones, so fasten your seatbelts - the roller coaster ride is
about to begin!
Clif Droke
March 19, 2002
Clif Droke is the editor of the weekly Bear Market Report, a combined
forecast and analysis of U.S. stocks and indices and international precious
metals stocks, and is the author of numerous books on trading and technical
analysis (most recently Gann Simplified, published by Traders Library). For
a FREE COPY of the Bear Market Report send e-mail to: cdroke9819@aol.com or write: The Bear Market Report, Clif Droke, P.O. Box 3401, Topsail Beach, N.C. 28445-9831.
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