CYCLES
Is The Market Truly Random?
The 40-Week Cycle In The Stock Marketby Jay Kaeppel
Is the market truly random? Some phenomena related to the stock market would not be expected to exist if the market truly were random.There has been much debate in the investment community regarding the existence of cycles in the markets. Some claim that cosmic forces (a full moon, for instance, or other celestial events) can cause the overall mood of investors to swing from high to low, often on a predictable and repetitive basis. On the other end of the spectrum are those who dismiss such notions as hogwash. Most investor opinions fall somewhere in between -- not entirely sold on the idea, but still willing to keep an open mind.
DO CYCLES EXIST?
In this article we will discuss the 40-week cycle in the stock market. This information is not presented as proof positive that cycles exist, but simply to make the point that there are phenomena related to the stock market that would not be expected to exist if the market were truly random.
Our analysis of the 40-week cycle starts on May 15, 1970, and makes the assumption that a new 40-week cycle starts on this date and a new 40-week cycle starts every 280 calendar days after that. The hypothesis is that the first 20 weeks of a new cycle represent the bullish phase of the cycle and that the last 20 weeks of each cycle represent the bearish phase of the cycle.
...Continued in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
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