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THE
MAGNIFICENT SEVEN Background:
And There Will Be Rumors of Bears: Chart 1 shows the Magnificent Longwave (Weekly) Cycles as they look riding thru the BEARX from 1996 thru Oct 2004. The filter sum of the weekly cycles is shown on each of the charts. It is difficult to clearly define a long-term trend line on the basis of this limited data for BEARX. It appears to have a slight positive bias to the upside but wait to see after Nov 2004. We used the longwave weekly cycles from the NYSE as a rough trend line since BEARX did not include some of the key weekly cycles such as 106,150, 181 and 294-weekly cycles. In effect, this says that BEARX maybe actually following the long term trend line of the NYSE (cycles greater than 68-weeks) while being adjusted on a periodic but shorter timescale. The “Big Cycle”: Chart 2 shows one of the largest weekly cycles in BEARX which is the 68-week cycle. This cycle in BEARX is actually forming a bottom in Nov 2004 which is consistent with a coming predicted top in NYSE during the week of Nov 19, 2004. This longwave cycle can be a leading indicator of a coming upward trend in BEARX thru June 2005 if the current cycle pattern continues. This cycle also suggests a strong rally in BEARX from early Jan 2006 thru July 2006 followed by another rally in late 2006 thru a significant part of 2007. This type of wave pattern is another indicator that suggests the NYSE has already entered into a secular bear market (confirmation possible in 2005). When Is The Last Stagecoach Leaving Dodge?: Chart 3 shows the prediction for BEARX for 2005 following a minor bottom formation in Nov/Dec 2004. This chart is roughly consistent with the opposite predicted behavior of the NYSE waveform for 2005 which is predicted to continue in a downtrend. One will have to see if the top starts forming in the NYSE in Nov/Dec 2004 before deciding about the actual entry point in BEARX. It will actually depend upon the timing of the NYSE 36-40 week cycle, and one should consider an averaging strategy with close stops in entering a mutual fund such as BEARX. Mirror Image: Chart 4 shows the actual 68-week cycle (amplitude in NYSE points) for the NYSE Weekly Composite Index versus the 68-week cycle in BEARX (amplitude in USD). This comparison was made to see if BEARX is truly a mirror image to the same key cycle in NYSE waveform. It shows that after an initial rough start in 1996 when BEARX was actually tracking the 68-week cycle in the NYSE Index (and dropping in value), the BEARX fund nicely corrected the phasing between these key cycles to become a mirror image to the 68-week cycle in the NYSE Composite Index. Bottom line is that BEARX is a “contrary” position to the NYSE Composite Index and as such one should be able to play this type of mutual fund against downtrends in the NYSE. Too bad, 99.99% of the “mutual fund options” offered in the 401 (K) options of large Corporations do not include BEARX-type funds but then why would these “buy and hold mentalities” do anything original? Why don’t they tell their employees that half the time the market falls and always reverts to the mean. Remarks: For all you “Boy Scouts out there in Internet Wall Street Land”, we close with a little ditty from the campfire days: “The Bear Song” “The other day, I saw a bear. A great, big bear, a way up there. He looked at me, I looked at him. He sized up me, I sized up him. He said to me, why don’t you run? I see you ain’t got any gun. And so I ran away from there, but right behind me was that big bear!”. Now up ahead there was a tree, a great big tree oh glory me! The lowest branch was ten feet up. I’d have to jump, and trust my luck. And so I leapt into the air, but missed that branch a way up there. Now don’t you fret, and don’t you frown, ’cause I caught that branch on the way back down!”
DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.
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The
Magnificent Seven is a chronicle about the adventures of
Longwave Weekly Cycles as they ride thru the markets. In this
episode, we examine the possibility of these cycles in a
(contrarian) mutual fund called BEARX
from 1996. The following charts were found under an old bear
skin lying in the back of a 500-Horsepower Dodge Pick-Up. The
primary seven weekly cycles in BEARX are 5, 11, 22, 34, 39, 68,
and 333 weekly-cycles. It is not possible to determine whether
BEARX follows longer cycles due to the limited database and the
333-week cycle is questionable at this point but it is a primary
long cycle in the NYSE. Missing entirely from the BEARX waveform
is key longwave weekly cycles in the NYSE of 107, 150, 181, and
294 weeks. This may due to the fact that the BEARX fund is
adjusted “quarterly” or on some shorter periodic basis (such
as 38 weeks) and there is no necessity to track any longwave
cycles. The intent of this study was to see if BEARX shows an
upward trend in 2005 since the NYSE is predicted to continue in
a downtrend. If so, perhaps it might be possible to identify
some timing with BEARX Fund.
