Monday, November 7, 2011

Technical Analysis - Time Cycles

Many of us have been focusing too much on the technical indicators and moving averages, and neglected one important aspect of the technical analysis - the time cycles.

Time cycle is the study of the TIMING of the market boom and bust, which tells us the timing of the event happen as history keeps repeating itself. According to one of the pioneers of cyclic analysis, Edward R. Dewey, "something out there in the universe must be causing these cycles (bulls and bears) ... there seemed to be a sort of pulse to the universe that accounted for the pervasive presence of these cycles throughout so many areas of human existence."

For example, take a look at our Malaysia GDP growth chart

From the chart, we can see that in the history of our Malaysian economy, the recessions were recorded in 1973, 1985, 1998, 2009, which is 12 years apart with the exception of 1998. In feng shui perspective, they all fall in the year of OX (1973, 1985, 2009) and Tiger (1998)!

I also discovered another horoscope that is prone for stock crash - the year of Snake. For one the Great Depression started in 1929, the year of Snake, subsequently we also have smaller crashes in 1965, 1977, 2001 and possible 2013? Is it coincidence or there is really something out there in the universe making this happen?

There was a Russian economist, Nikolai Kondratieff discovered this during the 1920's and published a book called "The Major Economic Cycles" in 1925. In his book, he noted the repeating behaviour of the economic cycle which is deemed capitalistic in the communist world, as a result, he was sentenced to death and died in a Siberian labour camp in 1938. Despite the tragedy, his work was recognised by people and his theory is known as the Long Wave Cycle or the K-Wave theory.

In the K-wave theory, there is a cycle of around 60 years divided into 4 seasons: Spring, Summer, Autumn, and Winter with each lasts about 15 years. For example the big cycles are as follows: (source from Wikepedia),

1. The first industrial revolution started in 1787 - 1842 (55yrs)
2. Rail Road and Steam Engine era 1842-1897 (55 yrs)
3. Age of steel and electricity 1897 - 1939 (42 yrs)
4. War and Post-war boom 1939 - 1982 (43 yrs)
5. Information Technology era 1982 - ?

As we can see if we add another 40yrs to 1982, it become 2022, which is 11 yrs from now. According to many analysts, they believe we're now going through the Winter wave of the K-wave cycle. How far is this theory hold true, I leave it to you to interprete. There are 2 more articles relating to this K-wave:

LinkArticle 1
Article 2

Happy investing,

Pauline Yong

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