From the March 01, 2007 issue of Futures Magazine • Subscribe!

Tech Talk: A good year for schizophrenics?

The year 2007 may hold a meaningful high and a meaningful low. The stock market has gone up without as much as a 10% correction since March 2003 — which is a record. The implication is that a correction is seriously overdue.

Technical analyst Peter Eliades commented that a low was due in the four-year presidential cycle, but lows were also due in the 25-year and 75-year cycles. The 25-year cycle contains such stellar lows as 1932 and 1982 and the 75-year cycle is equally impressive. In addition, Eliades pointed out George Lindsay’s bottom-to-bottom-to-top cycle pattern. By taking the distance between the bottoms in 1942 and 1974 and adding that to the 1974 bottom, you come to March 12, 2007. Eliades adds that if you take the time between the Dow bottom in 1982 and 1994 and add it to the 1994 bottom; you come to March 9, 2007. This would seem pretty compelling for a top in the very near future, particularly in light of the cyclical evidence.

James Flanagan, author of the Past Present Futures newsletter, points out that six of history’s 13 greatest bear markets reached their bear market lows in the “7th” year of the decade. He also points out that seven of the 16 largest bear market declines in history began after tops in the “6th” or “7th” year of the decade.

It wouldn’t be an unreasonable assumption to expect a top in the March time frame. A decent sell-off should follow setting up a low later in the year. The January Barometer says “as January goes, so goes the year.”

Eleven months following a January gain, the market was up 89% of the time. Further, 2007 is the third year of the presidential cycle, which is the strongest year of the cycle. Finally, every year following the eight-year cycle low has produced a double-digit gain ranging from 13.8% in 1943 to 38.5% in 1935. The average is a remarkable 21.8% gain. A top is likely in 2007 and that could be followed by the low that the various cycles project, which would create an excellent bottom. This year is likely to produce both an excellent selling opportunity and an excellent buying opportunity.

Garrett Jones is a founder of The Plutus Fund and is a partner in Stockmarket Cycles Management Inc. Jones can be reached at garrett111@comcast.net.

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