Peter Eliades
Peter Eliades website stockmarketcycles.com/
Peter Eliades - Technical Information stockmarketcycles.com/peter-eliades
Cycle Theory
Included in the technical indicator area are long term weekly charts of the Dow Industrial and Transportation Averages. The weeks on these charts are numbered so that we can refer the subscriber to particular cycles discussed in the letter. These charts are included at the end of this section. Week 0 is the major Dow low of December 9-13, 1974. There is also a long-term monthly chart of the Dow Industrials dating back to their inception in 1897. This chart can be used as a reference for long term market cycles.
The Cycle Indicator
1.095 and above Very high momentum signaling powerful and sustained market movement.
1.035 –1.080 High risk intermediate to long term top.
.995 – 1.034 Neutral – no important information given.
.980 - .995 Intermediate market bottom.
.925 – 965 Major market bottom capable of moving market to new all time market highs.
.910 and below Major market bottom, but new all-time highs improbable on next advance.
Through our research on market cycles, we have devised an indicator to measure one of the most helpful and accurate market cycles.
The Cycle Indicator very simply measures the average number of daily advancing issues (up stocks) on the N.Y. Exchange over a 189 day (market days) period. Taking holidays into consideration, the 189 market day span most closely measures 39 weeks. That period is used because both the 39 and 78 week cycles are paramount to our market analysis. When we first started analyzing these figures, we discovered that periods of low risk coinciding with market bottoms generally showed the some low Cl readings. Conversely, periods of high risk coinciding with market tops showed the some relatively high Cl readings.
The Cl readings were sufficient to measure the market over the few years of our initial analysis. They worked so well that we become fascinated with the idea of constructing a related indicator which could be compared over any period of market history for which we had advance-decline statistics.
We discovered in the middle to late 1970’s that anytime the average daily advances over a 39 week period declined to the vicinity of 680-710, a market bottom was imminent. On the other hand, when the average daily advances reached 750-760, a market top was in prospect. The problem with the indicator arose from the fact that no comparisons could be made with the other market periods for which we had the daily advance-decline statistics. For example, in the early 1930’s, a neutral day on the N.Y. Exchange may have seen 170 advances and 170 declines. Obviously the parameters given above of 680-710 average advances for a bottom and 750-760 averages advances for a top would have no significance when only 400 issues traded on the N.Y. Exchange.
For that reason, we devised the Neutral Cycle Indicator (NCI). It allows us to calculate a ratio which, in turn, allows a comparison of any two periods of market history. The NCI simply determines what a neutral day (same number of advances and declines) would consist of in a given time period. For example, on April 1, 1981, there were a total of 148,647 advancing issues over the previous 189 market days. Over that same period, there were a total of 144,441 declining issues. If we divide 148,647 by 189, we get 786 as the average number of daily advances over that 39 week period. Dividing 144,441 by 189 gives us 764 as the average number of daily declines over the some period. We can now say simply that over that 39 week period, the average day showed 786 advances and 764 declines. We can also say that on the average day over that period 1550 Issues (786 plus 764) changed in price i.e. advanced or declined. For purposes of our research we ignore the issues remaining unchanged. The final conclusion is also a simple one. Given the average number of issues changing price each day of 1550, a neutral day (equal advances and declines) over that period would be 775 advances - 775 declines (1550 divided by 2). 775 thus becomes our NCI or Neutral Cycle Indicator.
Thus, on the date of April 1, 1981, 786 was the Cl reading (average number of daily advances), and 775 was the NCI (average number of daily advances and declines on a neutral day). We can now form a ratio by dividing the Cl by the NCI. The result is 1.014 (786 divided by 775). Because the market moves cyclically, the ratio of the average number of advances (Cl) to the average of both advances and declines (NCI) fluctuates above and below the 1.000 mark. A ratio over 1.000 indicates a rising market (i.e. more advances than a neutral day). Fewer advances than a neutral day would, of course, give a result less than 1.000 and imply a declining market over the prior 39 weeks. Because ratios are used, any period in market history can be compared with any other period for which we have advance decline data.
Although there is theoretically no limit to the number of points the Dow Industrials or any other average can advance over a period of time, the computer-generated ratios have taught us that there are general limits to the swings of advances over declines (up market) and declines over advances (down market) over a 39 week period. Once these limits are reached, the market is bound to change direction. The purpose of the Cl, NCI, and CI-NCI Ratio is to measure the swings and determine the limits. It is not a short term measuring device, but an intermediate to long-term one.
The following have been the readings of important market tops and bottoms since 1932.
Bottom Ratio Bottom Ratio Bottom Ratio Bottom Ratio
1932 .852 1953 .955 1966 .892 1982 .926
1938 .867 1958 .926 1970 .891 1984 .945
1942 .929 1960 .946 1974 .839 1987 .940
1949 .966 1962 .929 1980 .947 1990 .928
1994 .945
Top Ratio Top Ratio Top Ratio Top Ratio
1937 1.040 1959 1.083 1971 1.080 1981 1.046
1938 1.057 1961 1.044 1973 .975 1987 1.025
1946 1.091 1965 1.038 1976 1.057 1990 1.020
1953 1.948 1967 1.048 1978 1.041 1994 1.023
1956 1.048 1969 1.049 1979 1.046