Why The Market Will Rally Next Year

David Frost // Market Outlook


August 23  

I’m not the inventor of today’s statistical information.  I found it interesting enough to mention and discuss in the context of where we are now and what to expect over the next few months.

As it turns out, the third year of a presidential cycle is the most bullish for the market, by far than any other year of a presidential cycle.

Take a look at this data which represents the Dow Jones Industrial Average dating back to 1932.

presidential cycle

The only common denominator is mid term elections.  It’s hard to believe, and certainly not something to take to the bank as a set it and forget it strategy.  But the numbers never lie.

Why is this relevant to us, today?

The market seems fine.

Everyone is content to ignore all the geo politics around the globe.

Nobody seems to be too worried about the economy as long as the economic data continues to get better little by little.

Earning are great.  Financial engineering and tax inversions are at all time highs.

All this is true.

There’s one problem thought.  The market is scheduled to decline into the October time frame.  I realize that sounds odd to most, and ridiculous to more than most, but don’t shoot the messenger.  I’m only reporting what the charts say.

So when I mention that the market is “scheduled” to decline, what is factual is that several cycles are due to bottom in this time period.

One might say, “how can they bottom if the market is still going higher?”  That’s a great question and frankly one that concerns me.  The concern is not that it might be wrong, that’s easy to deal with.  When a cycle doesn’t bottom or top on or around the time period it’s supposed to, that’s called an inversion and sometimes will cause an inversion of the cycle and an acceleration of the price continuing in the direction is was going.

It that happens, there’s you’re bullish year in 2015.

That’s not a concern, in fact, we’ll make plenty of money riding the market and stocks higher.

The pain point is the closer we get to the bottoming zone, the more violent a decline can be if in fact the cycles are going to bottom as scheduled.

So, back to next year.

Let’s say the market continues higher right on through the cycle date in October.  Then there would be a good chance of an inversion of the cycle and the acceleration to the upside discussed earlier.

Now let’s say the cycle does take hold.  We decline for part of September into October and the market finds a bottom when it’s scheduled to.  What follows big down moves?

Up moves.

It seems logical that if market symmetry works the way it normally does in terms of larger multi week or multi month movements, then we should see a market rally at least into the second quarter of next year – regardless when the cycles take hold or invert.

Pretty interesting, I’ve just laid out a case why the market should go up next year no matter what happens.  Sounds ludicrous and the last thing you’d expect to hear from me.  Good thing it’s only a theory.

Enjoy your weekend and tonight’s video review of the markets.

About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost