4 Year Presidential Cycle

Tuesday, December 27, 2005 | 09:30 AM

This is the first of 4 charts I plan on revealing this week. Each one will hopefully shed some insight into what we may expect in 2006.

This chart shows what is known as the 4 year or Presidential Cycle. The theory behind this is that U.S. markets have a tendency to make a high in the 4 year, and a low in the 2nd year of a president's term. It has held up quite well historically, with the notable omission of 1986 (Recall, however, what happened in 1987).

click for larger graphic

4_year_cycle



The chart suggests that a cyclicality is at play in direct contradiction to the random walk thesis. Given the upward bias of markets over time, regular corrections may be inevitable. What is truly astonishing is the very human tendency to downplay or even ignore these periodic dislocations.

This is not unlike yesterday's discussion of earthquakes, volcanoes and tsunamis.

>

I pulled this from my files, but unfortunately, I cannot find a source. It looks similar to work by Investech's Jim Stack; I emailed them to confirm this.  If anyone has any insight into where this may have come from, please let me know . . .

UPDATE 1:   December 27, 2005  11:03am

William Hester has several excellent charts on the subject here:

Average Gain in Year Two of Presidential Cycle Hides Important Declines
http://www.hussmanfunds.com/rsi/prescycle.htm

>

UPDATE 2:   December 27, 2005  5:03pm

James points us to BTR Capital Management (PDF) and this chart, which looks remarkably similar:

click for larger chart
4_year_us_equity_cycle

 

and, it looks better in red!

Tuesday, December 27, 2005 | 09:30 AM | Permalink | Comments (5) | TrackBack (3)
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Listed below are links to weblogs that reference 4 Year Presidential Cycle:

» More on the Presidential Cycle from At These Levels
This post from Barry Ritholz is relevant to another post on the same issue presented here on December 16. [Read More]

Tracked on Dec 28, 2005 12:30:50 AM

» Some Last Week of Trading from At These Levels
I find it very interesting that everyone assumed (including yours truly) that in a flat year the last low-volume week of the year will be up. It isn't. It will cover one more model that I have that was screaming duck since Monday, but after th [Read More]

Tracked on Dec 30, 2005 10:41:05 AM

» Some Last Week Of Trading from At These Levels
I find it interesting that everyone assumed, including yours truly, that in a flat year the last low-volume week of the year would be up. It isn't. It will cover one more model I have that was screaming duck since Tuesday, but after the close [Read More]

Tracked on Dec 30, 2005 2:04:41 PM

Comments

try BCA Research?

Posted by: james | Dec 27, 2005 11:15:23 AM

The comments to this entry are closed.



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