| SEP 1990
Four-Year Cycles by James G. Arnold
Four-Year Cycles by James G. Arnold I developed the ""form"" of a long-term up/down cycle of the stock market, as shown in Figure 1a. This form shows that all market trends continue to excess. The up market phase drives prices far above value and the down market phase carries prices well below value. Strangely, the extent of these excess movements has demonstrated great consistency in past markets. The measure of price relative to value is reflected in the price/earnings ratio (P/E) of the average and in the dividend yield of the average. The typical movement of P/E and yield over the long-term cycle is shown in Figure 1b, and Figure 1c. When the average P/E rises above 20 and the average dividend yield dips to the 3% neighborhood, the market phase is ready to shift from up to down. Similarly, when the dividend yield rises above 6% and the average P/E settles down toward 6 or 7, the long-term down market is about to turn into an up market. A similar consistency of extremes is found with the four year cycle, but the limits of these extremes are more psychological than real. A market trend feeds upon itself. A rising market generates enthusiasm. This attracts more buyers and more buyers cause the market to rise further. In a similar manner, a falling market generates fear. The fear produces more sellers, which, in turn, drives the decline further. In the physical technologies, this situation would be described as a system with positive feedback. Such systems are noted for their tendency to become unstable. The market certainly follows this analogy.
by James G. Arnold
Technical Analysis of STOCKS & COMMODITIES
The Traders’ Magazine since 1982
has had over 1,226,237 subscribers from 174 different countries.
37,000 Page Traders’ Archive for $89.99
To continue reading, sign-up for trial access to Traders.com and the S&C Archive — 37,000 pages of trading ideas!
After verifying your email address, you will have limited access to the S&C Archive, as well as access to a Digital Edition of S&C, and access to Traders.com Advantage and Working Money for 30 days.
Not a subscriber to Technical Analysis of
STOCKS & COMMODITIES magazine?
Click
here to subscribe, or request
a trial subscription.
Log-in now to view articles from the S&C Archive.
Your Subscriber ID is located at the top of your magazine label, highlighted here in red.
Your last name can be found on the second line, highlighted here in blue.
*If you have a company name on the label, that can also be used. It will appear below your name on the label.
If you do not have a Subscriber ID on your label, you can find it on your statement or renewal form.
For help locating your Subscriber ID number, please call us at 1-800-832-4642 or send an email to Survey@Traders.com. If sending an email, please include your name and mailing address.