Jeffrey A. Hirsch , The Little Book of Stock Market Cycles-Book Review

Jeffrey A. Hirsch is best known as the editor-in-chief of the Stock Trader’s Almanac. He draws on the extensive research behind that yearly publication for The Little Book of Stock Market Cycles: How to Take Advantage of Time-Proven Market Patterns (Wiley, 2012). 
Let’s get Hirsch’s most controversial call—that the Dow will reach 38,820 by the year 2025—out of the way right at the beginning. He claims that this “is not a market forecast; it is an expectation that human ingenuity will overcome adversity, just as it has on countless past occasions.” (p. 66) The operative equation is “War and Peace + Inflation + Secular Bull Market + Enabling Technology = 500% Super Boom Move.” (p. 67) But don’t buy that magnificent villa overlooking the Pacific or the Ferrari you’ve been coveting just yet. “[A]fter stalling near 14,000-resistance in 2012-2013, Dow 8,000 is likely to come under fire in 2013-2014 as we withdraw from Afghanistan. Resistance will likely be met in 2015-2017 near 13,000 to 14,000. Another test of 8,000-support in 2017-2018 is expected as inflation begins to level off and the next super boom commences. By 2020, we should be testing 15,000 and after a brief pullback be on our way to 25,000 in 2022. A bear market in midterm 2022 should be followed by a three- to four-year tear toward Dow 40,000.” (pp. 67-68) In brief, if Hirsch’s scenario plays out, we’ve got quite a wait for the market to catch up with our dreams.
The bulk of Hirsch’s book describes the most effective market seasonalities. Take, for instance, the presidential election cycle. Since 1913, from the post-election year high to the midterm low the Dow has lost 20.9% on average. By contrast, from the midterm low to the preelection high, the Dow has gained nearly 50% on average since 1914. (more…)

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