Obama and the Yale Hirsch cycle

Though we stayed out of political forecasting, predicting the elections, we know a few who predicted it right. Bill Meridian of CYCLES RESEARCH was on top of events with his Obama call. Now of course one can analyze why it happened. Maybe the anti incumbent factor, or the age factor, but market technicians saw it coming quite a while ago. Bob Prechter’s socionomics was also on dot. Socionomics, the science of history and social prediction talks about women being in power, as the social mood changes. This was the reason Bob stuck to his Hillary call over Obama. But a closer observation and one can see that women in power is a mood change. And so is the choice of the first African American president. It is rather more unconventional than a woman president. So social mood is about different choices. A positive mood could translate to a conventional choice and a negative mood is unconventional or shocking. We are in a large bear market already so the Obama choice had already sunk in. No wonder the election results were unequivocal.

Speculators could have betted on the results, the Obama or the McCain CALL option, the latter being cheaper than the Obama in the money option (Obama was consistently leading). But there was a limitation when you had to use the understanding or knowledge of the political landscape on the DOW futures. ‘The DOW reprieve’ we carried on 29 OCT highlighted 9,600 as an ending C wave and not the start of a 3 wave. The election result had no impact on DOW and it is where it was on 29 and did not move out of the FLAT A-B-C formation (RIGHT) we illustrated.
And now if we see the formation correct, the new president won’t be able to halt the slide of DOW to a new low. Presidential cycles are bigger than presidents and even a great leader can not change the course of the market, short term or long term. The Yale Hirsch presidential cycle has worked with uncanny precision since 1954. The cycle challenges the straight line theory of prosperity and growth of market and the theory of bottomless markets. Business and economy move in cycles. The US presidential cycles have been studied for over 60 years. Yale Hirsch also wrote about winter gains and autumn crashes. The 3RD-4TH year witnesses gains 3 times more than the 1ST and 2ND year. There were of course exceptions when the cycle did not work like that in 1986.
The reason for exceptional gains in the later part of the term is owing to heroic steps made in the 2nd and 3rd years. No heroic steps are made in the second term. The cycle also talks about no economic or market correction in the first 2 years. The crash happened in 1987 in the Regan era, for Clinton it was in the fourth year, in 2000. For Bush it was in the 3 year starting Oct last year. And most times market forms significant lows in the 2nd year with average gains at 50%.
The current presidential cycle projects a 2010 rise. Then comes the BENNER cycle lows in 2011. The Clement Juglar business cycle also seems incomplete and 2008 is too early for a decade low. All these cycles overlapping together in the last few years of the decade suggest a complex structure rather than a simple unending collapse.
The only positive four DOW 30 stocks in our tracker also seem to exhaust. So a marginal new low below OCT lows can not be ruled out. On the positive side, the only stock positive for the last 3 months is J P MORGAN at a positive 5%. When the financial crisis throws up a banking stock as a winner, markets are definitely discounting all negativity. Any leg lower from here should be the final one for atleast few quarters.