9 Cycles Every Stock Market Investor Should Know

The shortest cycle looks at fluctuations in the price change over 12 trading-day periods (blue line). Its best-fit sine wave cycles from peak to peak every 32 trading days (rose line). In the 12 trading days ending June 26th the S&P 500 declined 5.7%. The sine wave bottomed June 26th. An advance Monday June 29th could mean the market bottomed for this cycle along with the sine wave. The sine wave will peak July 23rd.

The next longer cycle tracks return over 42 trading-day periods. Its best fit sine wave heads down till August 25th.

By contrast the 77 trading-day return may be headed for a peak around August 31st.

The return over 136 trading days may trend higher till December 22nd.

The return for 326 trading-day periods has an estimated peak for late April of next year.

Combining these five daily cycles can give a de-trended model of the stock market.

We can also add the trend back in to estimate the S&P 500 (SPY).

The four cycles using monthly data estimate return on an index with reinvested dividends adjusted for inflation. They also show models based on the sine wave and a valuation measure, PEses. Three of the four sine waves are in down phases. When the valuation is added all four models are pointing down.

The 31 months ending June 2020 will return about 20.8% (last point on blue line); a bit higher than the model in green estimated at 18.6%. The next 31 months to January 2023 are estimated to lose 2.9% (last point on green line) after inflation and dividends. The best fit sine wave bottoms November 2023.

The model for the 62-month return suggests the period ending March 2023 will lose 24.1%.

The sine wave for 135-month return periods is in an up phase, but the return for the 135 months ending June 2020 at 326.2% (last point on blue line) is way above the estimate. The model in green hits a low point of 98.4% in May 2022, which suggests an 18.6% loss between now and May 2022.

The 271 months ending June 2020 have returned 215.2%. The model estimates the 271-month return ending March 2023 will lose 4.54%, which suggests a 54% loss between now and then.

These four models can be combined: here are the combined de-trended and trended versions.

The trended model comes to a multi-year high in July 2020 and hits a low point in July 2022.

I expect the trended version understates the potential decline. Above average returns the last 30 years pushed the trend higher than it was in the 100 years before that. I believe this steeper trend is temporary and that weaker returns the next several years will lower the trend.

To look at nine cycles together, I combined the trended monthly model with the de-trended daily model to estimate the S&P 500.

I kind of think this represents a best-case scenario. The trend going forward could be significantly weaker than the history the trend is based on. Even so I expect the next few weeks to have positive stock market returns that either make a new all-time high or become a failed test of the February high.

I sent a notice of this cycle to my followers in a blog post Friday. If you want to be sure to get timely updates you should scroll up and click the “Follow” button.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: There is no guarantee analysis of historical data their trends, cycles and correlations enable accurate forecasts. The data presented is from sources believed to be reliable, but its accuracy cannot be guaranteed. Past performance does not indicate future results. This is not a recommendation to buy or sell specific securities. This is not an offer to manage money.