Over the past week, Fib's comments in the chat room transcripts concerning a potential phase shift in the 9-month (40 week) cycle have piqued my interest. For those interested, refer to the chat room transcripts for Thursday, 1-5-06.
In an attempt to learn more about the phase shift topic, the question was posed to Tom McClellan who provided excerpts of past commentary from another forum, and Tom also addressed the 9-month cycle in the most recent twice-monthly McClellan Market Report edition published on 1-6-06.
Tom has given permission to post their 9-month cycle thoughts on Technical Watch. The McClellans do not feel a phase shift has occurred at this time, but are certainly open to the notion the 9-month cycle low may come in early this time.
Here are the McClellans' comments on the 9-month cycle and its current configuration, and note in the first chart the early 9-month cycle lows, often following the associated 40 week cycle's second 20 week's "half harmonic" top being higher than the first harmonic's 20 week price high.
Courtesy of McClellan Financial Publications:
" The first chart shows our composite 20/40-week cycle pattern. The 20-week cycle is a “half-period harmonic” of the 40-week cycle; its bottoms tend to be less significant than the 40-week lows, and also tend to be less punctual in their arrival. By this chart’s schedule, the next 40-week low is due in early February, although it is worth pointing out that the last three 40-week lows have arrived a bit earlier than scheduled.
We have studied several decades worth of history of the market’s movements in the context of the 40-week cycle. One of the interesting discoveries is that it did not really exist before the mid-1950s. It is worth noting that stocks traded six days a week up until 1952, when the short Saturday sessions were dropped. It is perhaps possible that this change is what enabled the 40- week cycle to come into existence, but we’ll never really know why it exists. One of the other fascinating discoveries is that the arrival schedule of the 40-week cycle tends to undergo a “phase shift” about every 6-8 years.
This is a term we coined years ago to describe an event that puts the 40-week cycle on a new schedule. We do not know if other cycle analysts have also used that same term previously, but as far as we know it was our own discovery.
The chart below shows a very long history of the behavior of the 40-week cycle, and among other items we note the phase shifts which occurred in 1983 and 1990-91. The grid lines are set 189 days apart, to help you visually see when the 9-month cycle bottom should repeat, but it is important to note that these grid lines are not necessarily aligned with the actual cycle bottoms.
A phase shift is not a change in this cycle’s period, but rather when it sort of skips a beat and then restarts at some new point. As an example, we saw 9-month cycle bottoms on Jan. 30, 1990 and Oct. 11, 1990. The next one should have arrived around July 1991, but it was not there. Instead, an important bottom was put in on Dec. 11, 1991, five months late. Thereafter, the 40-week cycle bottoms appeared roughly on 9-month anniversaries of the Dec. 1991 bottom.
This 6-8 year phase shift schedule should have resulted in a change around 1999, and the way we see it, the market tried to accommodate. But in the midst of the whole phase shift agenda, the 9-11 attacks arose to act as a defibrillator for the market, shocking it back into its old rhythm, the rhythm which persists to this day. One other interesting trait of this cycle is its tendency to see a muted manifestation every 3 or 4 iterations.
We denote these instances with an X on the chart. We’d like it better if it were exactly 3 or exactly 4 iterations, but the market does not always give us orderly behavior. By our count, the next 40-week low is due in early February, but since this will be the 3rd bottom since the X seen in Dec. 2003, we could get another X event this time, resulting in a quiet manifestation. The new highs in the A-D and Volume Lines certainly argue in favor of such an outcome."
Note the McClellans' recognize the current strength in the market's internals, along with the current 40 week cycle's second 20 week harmonic price high being greater than the first harmonic's, the price lows for the current 40 week cycle will likely be muted.