Buy Low, Sell High, Go Short & Cover Case Study

nasdaq

Continuation from Friday…….(Buy Low, Sell High, Go Short & Cover Summary)

The premise is very simple. We will study the Nasdaq between 1994 bottom and today in order to determine how various investment strategies would have performed during the time. In order to initiate the process we must first have a clear understanding of exactly where we were in the cyclical composition of the stock market back in 1994, where we are today and what had transpired in between.

In my previously published book Timed Value a considerable amount of time was spent on discussing two powerful cycles that tend to rule the overall stock market since it began trading in May of 1790. These cycles are the 17-18 Year alternating Bull/Bear cycle and one completed growth unit within the stock market, most commonly represented by a 5 Year Cycle. Let’s now take a closer look at both, starting with a bull market cycle of 1914-1932.

THE 17-18 YEAR CYCLE IN THE STOCK MARKET:

17.5 Year Bull Market (1914 bottom to 1932 bottom): The previous bear market terminated in July of 1914. At that time the US stock market shut down for World War 1. The stock market remained closed between August of 1914 and December of 1914 (a very rare occurrence). When the market finally reopened in December of 1914 it immediately began a rally that would not terminate until October of 1929. Followed by a now famous 1929 stock market crash and a massive 90% 3 year decline. The cycle terminated at the bottom in 1932, completing the 17.5 year bull market cycle at that time.

*Note: It is important to address the 1929-1932 bear market and its impact on the overall 1914-1932 Bull Market cycle. It is a complex matter to discuss without sufficient background or understanding, but the final (short-term) structural composition of this Bull Cycle inverted over the last 3 years (1929-1932). Mostly due to a massive rally between 1924-1929 and a number of down cycles converging on this time period at the same time. Regardless, the overall cycle lasted 17.5 years.

To Be Continued Tomorrow…….