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Ed Easterling’s 12 Rules of Market Cycles

  
  Education
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Here are Ed Easterling’s 12 Rules of Market Cycles:

1. Secular cycles are driven by the inflation rate (deflation, price stability, and higher inflation)

2. Secular bulls occur when P/E starts low and ends high over an extended period

3. Secular bears occur when P/E starts high and ends low over an extended period

4. Cyclical bulls and bears are interim periods of directional swings within secular periods

5. Cyclical cycles are driven by market psychology, illiquidity, or other generally temporary condition(s)

6. Time is irrelevant to the length of secular stock market cycles

7. Secular bulls require a doubling or tripling of P/E

8. Secular bears occur as P/E stalls and falls by one-third to two-thirds or more

9. When real economic growth is near 3%, there is a natural floor for P/E between 5 and 10, a natural ceiling around the mid-20s, and a typical average in the mid-teens

10. If economic growth shifts upward or downward for the foreseeable future, the natural range moves upward or downward, respectively

11. Inflation drives P/Es location within the range; economic growth drives the level of the range

12. The stock market is not consistently predictable over months, quarters, or periods of a few years; the stock market is, however, quite predictable over periods approaching a decade or longer based upon starting P/E

8 Skill Every Traders must have

  
  Education
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  • Passion. The best investors I’ve seen truly love what they do. It’s the only way they are able to put in the time needed to become great.
  • Experience. The pros have seen it all. They’ve been through all sorts of market cycles. Long periods of sideways choppiness, uptrends, and downtrends. And not just the short term 15-20% corrections but the big 50% corrections too.
  • Adaptability. Markets change. And the strategies that were working in one market may eventually deteriorate. Good traders will change their methodology to match the new market conditions.
  • No ego. None. If you go into trading with an ego the market will eat you alive. The elite investors are able to admit when they’re wrong. They even embrace it. Being wrong quickly means they can move on to being right faster.
  • Emotionless. This goes hand in hand with ego. Along with pride, investors face a daily trio of emotions of hope, fear, and greed. The worst investors allow their emotions to control their trading; the best avoid any emotional attachment at all. (more…)

The Magical Number of Pi and Stock Markets

  
  Education
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There are some magical numbers and sequences of numbers that have their prints in the nature. They were there in the first place because God who created the whole universe encoded them just like His signature or autograph. Now, we might wonder, why is these magical numbers so important in our discovering of the secrets of the stock market trading and investing business? The simple and quick answer to that question is that these numbers resonate and vibrate in the stock markets, commodity markets and forex just as they are found in the universe that we live in. This is true for any financial markets. Before you discredit my claim of the magical number pi (π) and its application in making money in financial markets, take a good look of Fibonacci. This magical sequence of numbers of Fibonacci that starts from 1, 1, 2, 3, 5, 8, 13, 21, and etc, had been a very good technical indicator of when (time) and where (price) should the index futures reverses its trend. The number of pi (π) is so magical that its decimal portion is unique and there is no repetition of patterns. Just in case that some of you wonder what pi (π) is, it is a constant number where pi π = 3.1415926535897932384626433832795… The study of market cycles and market geometry uses pi (π) to pin-point the exact reversal date and price for stock markets and other financial markets. Here I present to you a video that sings out the magical number of pi (π).



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

  
  Education
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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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