Real-Life Examples of the 9-Month Cycle

The chart below shows examples of 9-Month Cycles -- the beginning and end of the cycles is marked by the dotted red lines. Of the three complete cycles shown only the first (January to October 1998) is what I wwould call a perfect example of a 9-Month Cycle. The two cycles that follow are two of the worst examples I have ever seen, but they do serve to illustrate the difficulty of working with cycles.

Another concept illustrated by this chart is how to use technical indicators to identify or confirm cycle lows. For example, the October 1998 low was confirmed by a beautiful positive divergence on both the ITBM and ITVM -- higher oscillator bottoms associated with the double bottom on the price index. In February 2000 the cycle low was confirmed by relatively oversold bottoms on the ITVM and ITBM.

Some may disagree with my designation of a 9-Month Cycle low in June 1999, but I decided to adhere to the nominal cycle schedule, which was more or less confirmed by a series of short-term bottoms on the ITBM and ITVM, and by its location between the easily identifiable October 1998 and February 2000 cycle lows.

What we have presented is a structure or paradigm within which we can approach analysis of cycles in real time. It is not carved in stone, and you have to be flexible in your approach to cycle analysis -- more or less turn down the left brain and use right brain functions of creativity and intuition. Remember, there are two primary objectives:

(1) To identify the 9-Month Cycle low as soon as possible because it represents the best buying opportunity in the entire nine months; and

(2) To correctly identify the crest of the 9-Month Cycle because it is from these tops that significant market declines normally begin.

We accomplish these objectives is by tracking subordinate cycles and other market indicators.

Nominal Count Versus Price Count

On the chart below the vertical lines show the location of Nominal 9-Month Cycle troughs since 1996. The normal expectation is that the price index will arc from trough to trough, but sometimes other forces override normal cycle pressures, as happened in 1999 and 2000 when the market was transitioning from secular bull to secular bear.

Because we are depicting "nominal" cycle projections, all the lines are of equal distance from one another, and they show where the cycle trough is assumed to be located. In other words, we believe that cycle periodicity is consistent, but price movement doesn't always conform to the cycle ideal.

Even though prominent price lows don't always hit the nominal targets, you can see that price movement tends to be drawn to the projections based upon the nominal count. For this reason I use the nominal count when projecting the 9-Month and longer-term cycles.

For shorter cycles, it is best, in my opinion, to use the price count. For example, when a prominent price low can be identified, it can be used to project the arrival of the next 5-Week or 10-Week Cycle trough. We track both the nominal count and the price count projections in the Decision Point Alert daily report.

Conclusion

We can observe on most price charts that prices move in cyclical patterns, and using cycle studies is one way to anticipate periods of weakness and strength. While using cycles may at first seem obvious and intuitive, it can actually be quite frustrating, particularly if you expect prices to conform precisely to your projections. It doesn't usually happen that way.

No two people use cycles in exactly the same way. Even people using similar methodologies will not necessarily arrive at the same conclusions. It is best, in my opinion, to use cycle projections as one element of your total market analysis, giving it more or less weight depending upon how closely prices are conforming to the cycle projection.

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