The 17.6-Year Market Cycle

The 17.6-Year Market Cycle

By Chad Shoop

As stocks climb to multiyear highs, with the media crowing that it shows no sign of slowing down, it’s easy for investors to get caught up in the excitement – and the greed – of the moment. But it’s important to remember that stocks do not go up in a straight line. Big falls can and will occur when you least expect them.

Greed can blind you. You may be in a rush of adrenaline, expecting more double – and triple-digit returns, and completely miss the warning signs that a stock market trend is about to reverse. But the stock market, despite its volatility, is cyclical . . . which allows you the opportunity to profit (and even multiply your profits) no matter what direction it takes.

It shouldn’t surprise us that the market is cyclical . . . after all, much of our lives are cyclical . . . from the rising and setting of the sun to the four seasons of spring, summer, fall and winter.

The market goes up (bull) and down (bear) over time.

Bear and bulls take turns ruling the stock market, with a repeating market cycle visible to those who pay attention. These alterations come approximately every 17.6 years. Each stock market cycle consists of increments of 2.2 years that correspond to major cyclical stock market turning points such as 1929, 1974, 1987, 2000, 2007, 2009 and beyond. So while the macroeconomic trend may be bearish, that same 17.6-year span may see increments of bullishness.

Although Kerry Balenthiran laid claim to this 17.6-year stock market cycle of alternating bears and bulls (modestly calling it the “Balenthiran Cycle”), he’s not the first one to notice the pattern. Jim Rogers noted: “It looks as if God himself were a trader who enjoyed playing the stock market for 18 years or so and then switched to futures, until he got so bored again after 18 years or so and went back into the stock market.”

Even the Oracle of Omaha, Warren Buffett, noticed the significance of a 17-year time period in the stock market: “I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like they’ve performed in the past 17.”

And history itself proves the cyclical nature of the market. Looking back over the past 100 years, you can see that the stock market has alternated bear and bull markets roughly every 17 years.

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