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Has the Stock Market Bottomed?

No! It's not even close

February 10, 2003

The purpose of this article is to provide the investor with a non-biased analytical look at the stock market. I can assure you that my analysis is based on sound technical principles, not the hope and hype that Wall Street is trying to feed the public. I want to show you the Big Picture. In my attempt to do so, I am combining a few of the things I have learned from my studies of Cycles and of Dow theory.

In the November 2001 issue of Technical Analysis of Stocks & Commodities Magazine, I presented my research suggesting a move in late 2002 that would take the Dow Jones Industrial Average (DJIA) below the 1998 4-year cycle lows. This forecast came to pass with the decline into the October 2002 low. In summary, this research showed that any 4-year cycle that tops in 20 months or less has historically taken out the previous 4-year cycle low. Going back to 1896, but prior to 2002, there were five times where the 4-year cycle had topped in 20 months or less and 100% of these five cycles took out the previous 4-year cycle low. History has proven once again to be the best teacher. The great Bull market period from 1974 to 2000 topped with a 4-year cycle count of only 16 months from the 1998 4-year cycle lows. This little discovery has now proven itself once again. The decline into the October low was the 6th occurrence of this phenomena.

As a result of my study of Cycles combined with my study of the works of the great Dow theorists, Charles H. Dow-1902, William Peter Hamilton-1922, Robert Rhea-1932 and E. George Schaefer-1960, I have drawn many conclusions about the current bear market, some of which are relevant at this point.

As I read about the Bull and Bear markets of the late 1800's and very early 1900's, it becomes apparent that the Bull markets Mr. Dow wrote about were the upward movements of the 4-year cycle and the Bear markets were the downward movements of the 4-year cycle. As our country became more and more sophisticated and more people started investing, the Bull and Bear periods became longer. Bull and Bear markets evolved into a series of multiple 4-year cycle periods. For example, the Bull market from 1921 to 1929 was a period of two 4-year cycles. The low in November 1929 was a 4-year cycle low. The rally, "Secondary Reaction," that followed was the upside of a 4-year cycle that topped in only 5 months. Again, any top that has occurred in 20 months or less has historically taken out the previous 4-year cycle low. Once this "Secondary Reaction" was over, the DJIA moved down below the previous 4-year cycle low and into the 1932 4-year cycle low, which proved to be the Bear market bottom.

I would also like to point out the 1921 to 1929 Bull market advanced a total of 568% from the 1921 4-year cycle low at 67 on the DJIA to the 1929 4-year cycle top at a high of 381 on the DJIA.

The next great Bull market began with the 4-year cycle low in 1942 and ran to the 4-year cycle top in 1966. This time the "Primary" Bull market comprised a series of six 4-year cycles. The Bear market that followed was also a series of 4-year cycles. From the 1966 4-year cycle top, the Bear market moved down into the 1974 Bear market low. This was a series of two 4-year cycles.

The second great Bull market advanced a total of 1076% from the 1942 4-year cycle low at 93 on the DJIA to the 1966 4-year cycle top at a high of 1,001 on the DJIA. The bear market that followed ran from the 1966 high to the 1974 4-year cycle low at 570 on the DJIA.

From a cyclical perspective, the last and Greatest Bull market of all time began with the 1974 4-year cycle low and ran to the recent 4-year cycle top in January 2000. This "Primary" Bull market comprised a series of seven 4-year cycles.

This Great Bull market advanced a total of 2,061% from the 1974 4-year cycle low of 570 on the DJIA to the January 2000 high of 11750 DJIA. I can assure you; this Great Bear market is just beginning.

How Long Will The Bear Market Last?

As you can see, each Bull and Bear market has been a longer series of 4-year cycles and the percentage advancement of each Bull market has been roughly double the previous Bull market's percentage advancement. The Bear markets have indeed lengthened in terms of the series of the number of 4-year cycles as well.

Now, I want to focus on the Bear market declines. The 1921 to 1929 Bull market was 8 years in duration and the 1929 to 1932 Bear market was 3 years. The Bear market duration was 37.5% of the preceding Bull market. The 1942 to 1966 Bull market was 24 years in duration and the 1966 to 1974 Bear market was 8 years. This Bear market duration was 33.3% of the preceding Bull market. The last Bull market ran from 1974 to 2000 and was 26 years in duration. Some argue that the last Bull market began in 1982. I understand that argument, however, from a cyclical perspective the Bull market began in 1974. 1982 was when the Bull market broke out and became apparent. The point I am trying to make obvious here is that this Bear market is just beginning. It was not over with the October 2002 low. Based on the relationships of the Bull and Bear markets of the past we are not very likely to see the bottom of this Bear market before 2008 and possibly as late as 2010. I say 2008 because that would be roughly 33% of the duration of the preceding Bull market. A bottom in 2010 would be closer to the 37.5% decline seen with the first Bear market. From a Cyclical perspective, this Bear market will have to end with a 4-year cycle low. I would say that we should expect the bottom with either the 2006 4-year cycle low and possibly not until the 2010 4-year cycle low.

So now, the question is how low does the DJIA go?

My minimum price objective for this Bear market is based on a very simple method. A method that is being completely over looked by most "analysts." In the world of technical analysis, the S&P 500 has formed what is called a head and shoulders top. This topping formation gives the technician a method of estimating the downside move that follows such a top. This estimated move would bring the S&P 500 down to around 315. 315 on the S&P 500 would equate to approximately 3000 on the DJIA. I know most people are probably saying, "no way that will happen" and that is exactly what I heard back in 2001 when I was calling for a decline into the mid-7000 range in late 2002. I can assure you this bear market is NOT over and this forecast is highly probable.

Now you may ask, "What can we expect in 2003?" I now expect to see the current weekly 22-week cycle test the October 2002 lows. It is highly probable that we see this weekly cycle low, which is due by early April, move below the October 2002 lows. Once this weekly cycle bottom is in place, we should then see the market rally. If the October low is broken, I would then expect this rally to last no more than 6 to 8 weeks. This rally should then mark the top for the next weekly cycle rally. From this top, I then look for the market to resume it's downward move into the seasonal cycle low, which is due in late summer or early fall 2003. I am also looking for the 4-year cycle low to occur in conjunction with this coming seasonal cycle low.

Some analyst's are calling the October 2002 low the 4-year cycle low. At this time, I totally disagree. Let's now take a look at my reasons.

Going back to 1896 the 4-year cycle has averaged 47.08 months in duration. The last confirmed 4-year cycle bottomed in September 1998 at 7400.30 on the Dow. The next 4-year cycle low was ideally due between August 30, 2002 and November 1, 2002.

Because of the duration of the 4-year cycle, it can sometimes require extended periods of market action in order to confirm the 4-year cycle bottom. It is obviously very easy to look back in time and identify these bottoms, but how do you reliably identify a cycle of this duration in real time. Other than waiting on the future action of the market, I have found two tools that have historically worked great at identifying the 4-year cycle bottoms.

Paul F. Desmond's study on 90% days has proven to be an excellent indicator of 4-year cycle bottoms. I combined my study of the 4-year cycle with Mr. Desmond's 90% study and I found that with only 2 slight exceptions all 4-year cycle bottoms since 1940 (this is as far back as this data was made available to me) have been formed with a series of 90% days as described in Mr. Desmond's research. Thus, the incorporation of this research has proven extremely useful as an early indication of 4-year cycle bottoms. You can visit Mr. Desmond's web site at

Another tool that has proven to be the most accurate as an early indicator of 4-year bottoms is Peter Eliades' CI/NCI indicator. CI stands for Cycle Indicator and NCI stands for Neutral Cycle Indicator. Peter states in his December newsletter, "There hasnever been an important market bottom in the history of the data going back to the 1920s with the CI/NCI ratio above 0.980 as it was in October 2002. You can visit Peter’s web site at

Neither of these early warning indicators signaled the occurrence of the 4-year bottom in October 2002. October 2002 was the 49th month since the previous 4-year cycle bottom. So, given the fact that the ideal timing for the 4-year cycle has now passed, one of two things has obviously happened. One, either October 2002 was the 4-year low and these historically accurate indicators have not signaled the bottom. Or two, the 4-year cycle is extending and thus has not occurred. At this time I believe we are seeing the latter. I do not believe that both Paul Desmond's and Peter Eliades' early indicators have failed.

Let's now look at my statistical findings. Out of 26 4-year cycles, 9 have extended past 49 months. That is 35 percent. Of the 4-year cycles that have extended beyond 49 months, these cycles averaged 56.44 months in duration. If this 4-year cycle has indeed extended, the next window of time for it to bottom is with the next seasonal low and that bottom is not ideally due until October 2003. That would take the 4-year cycle count out to about 61 months depending on the timing of the seasonal cycle bottom. This is not outside of the historical norm. The longest extension was 68 months, which was the 4-year cycle from July 1932 to March 1938. The 4-year cycle from April 1994 to September 1998 was 56 months. The 4-year cycle from August 1982 to October 1987 was 62 months. Yes, I think we have an extended 4-year cycle on our hands. If this proves to be the case, the first three-quarters of 2003 should prove to be extremely bearish.

Once the 4-year cycle bottom is in place, a good rally in the market should come. I fully expect this rally to be so powerful that most people are going to get excited about the markets again. The "analysts" are going to be telling us that we have seen capitulation and the Bear market is over. I fully expect them to talk about the new Bull market that is underway. Don't buy it. After all, these are the same "analysts" that never saw the end to the 1974 to 2000 Bull market, nor the beginning of this Bear market. Many of these same "analysts" have also continuously denied that we are even in a Bear market and told everyone that the recession is over. The analysts that finally have acknowledged the Bear market are now telling us all that it is over and we have seen the bottom. From a Dow Theory perspective, the rally out of the coming 4-year cycle low will be nothing more than a major "Secondary Reaction." From a Cyclical perspective, I look for this to be another 4-year cycle rally that should certainly last less than 20 months and based on my seasonal cycle work possibly less than 6 months. Once the coming 4-year cycle tops, the market will once again continue its decline into the 2006 4-year cycle low.

I try to help the investor understand the financial times that we are now facing. Through my monthly newsletter, Cycles News & Views, I also try to help them time the intermediate and long term cycle changes so that they can invest accordingly. For more information please visit my web site at


Tim W. Wood

Editor: Cycles News & Views

Contact: [email protected]

Or 318-342-9038


10 February 2003

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