Cycles review, Part X: The Decennial Cycle

The Decennial Cycle is well-known, although I've discovered that there seem to be several versions of it claimed under different authorship! One was apparently published by Edgar Lawrence Smith in a book, "Tides in the Affairs of Men" and includes such statements as, the fifth year of each decade tends to exhibit the most latent fear in public sentiment and therefore the stock market tends to do well during the fifth year since the market responds favorably to investor fear. (Huh?) And his 10-year cycle bottoming at the end of the fourth year of each decade. Then, there's a 10-year cycle used by Samuel Kress, which would be proprietary to Mr. Kress. There's also a Decennial Cycle published as an exhibit in The Elliott Wave Principle book by Frost & Prechter. It's the one in which the U.S. equities market bottoms in a year ending in ‘2’ and then progressively rises to a peak in a year ending in a ‘6’ or ‘7’ and experiences a crisis and slump. The market then rises to another peak in a year ending in ‘9’ or ‘0’ ended year, followed by another market collapse. DogsoftheDow.com shows one of the charts depicting this (along with this note: "Point of Interest - One shouldn't put too much emphasis on this popular cycle as there isn't any particular underlying reason why the stock market's performance should be tied to any given year within a decade except, perhaps, as it relates to the presidential cycle.") as the Decade Cycle. Despite their assertion there "isn't any ... reason," you can see that the chart shows a definite pattern:


Below is a table documenting effects of the Decennial Cycle back to 1887 - this particular data set being quoted from an article at a cycles website of a fellow called David McMinn, at http://www.davidmcminn.com/pages/2007.htm (which I am not familiar with, but came across while research information on the Decennial Cycle for this post):

BEAR MARKETS IN 7 ENDED YEARS
7 Ended Yrs ....... DJIA High ........... DJIA Low ............ % Decline ....... Market
1887 .................... Dec 03, 1886 ........ Apr 02, 1888 ......... -20.1 ........... Bear
1897 ................... Sept 10, 1897 ........ Mar 25, 1898 ......... -24.6 .......... Bear
1907 ................... Jan 19, 1906 .......... Nov 15, 1907 ........ -48.5 ........... Bear
1917 .................... Nov 21, 1916 ......... Dec 19, 1917 ........ -40.1 ............ Bear
1927 .................... Oct 03, 1927 ......... Oct 22, 1927 ........ -10.2 ............ Correction
1937 .................... Mar 10, 1937 ........ Mar 31, 1938 ....... -49.1 ............ Bear
1947 .................... May 29, 1946 ........ Jun 13, 1949 ........ -24.0 ........... Bear
1957 .................... Apr 06, 1956 ......... Oct 22, 1957 ........ -19.4 ............ Correction
1967 .................... Feb 09, 1966 ......... Oct 07, 1966 ........ -25.2 ........... Bear
1977 .................... Sep 21, 1976 .......... Feb 28, 1978 ........ -26.9 ........... Bear
1987 ................... Aug 25, 1987 ......... Dec 04, 1987(*) .... -35.1 ........... Bear
1997 ................... Aug 06, 1997 .......... Nov 12, 1997(*) ... -13.2 ........... Correction
2007 ................... Oct 09, 2007 ......... CONTINUING -? ..................... BEAR

(*) The actual low occurred on the day of the panic, but the date given was the low after this event.
Note: Bear market fall means less than 20% drop; Correction market fall means more than 10%and less than 20% drop.

For more information: If the peak occurred in a year ending in ‘7’ then it was also most likely to happen in the 2.1-month time frame beginning August 6 (1897, 1927, 1987, 1997 & 2007)! The exception was in 1937 with a high on March 10. Most recently in 2007, the DJIA record high happened on October 9, so that was quite consistent with these Decennial Cycle probabilities.

One statement about a Decennial Cycle can be found by Manfred Zimmel at http://www.amanita.at/Interessantes/Artikel/detail.php?id=1584, as follows:
"decennial cycle (10 years): amplitude around 35%The decennial cycle is the best-known cycle. As a matter of fact there are huge differences in the average performance of a year: ranging from almost +30% in a '5'-year (such as 2005, 1995) to a loss of more than -5% in '0'-years (such as 2000), which translates into an amplitude of some 35% (chart from Alan Newman 1881-2007, N=127)." (And, okay Yelnick fans, he discusses decennial cycles at http://yelnick.typepad.com/yelnick/2005/05/the_great_wave_.html.)

Of course, there's also a Decennial Cycle attributed to W. D. Gann, although an article at SchoolofGann.com asserts that it's based on astrology but is not an actual 10-year cycle, it's one-half of Gann's 20-year cycle which is the conjunction of Jupiter (12-year cycle) and Saturn (30-year cycle) and is actually just under 20 years in length. Deemed a "synodic cycle" that tells how much time it takes for Jupiter and Saturn to appear at the same longitude in the sky.

There was a fellow called Benner who apparently went broke due to a hog cholera outbreak (and probably other reasons) during the 19th century, who upon retirement studied markets and published a cyclic pattern in 1875. Then, A.J. Frost (co-author with Bob Prechter of The Elliott Wave Principle) elaborated on Benner's cycle using Fibonacci. Benner's 9-year cycle is below, followed by Frost's Fibonacci-based elaboration of it:


There is a group called the Foundation for the Study of Cycles which has a website. However, I haven't been able to see any free, publicly available information from them on cycles, and am reluctant to spend money for their publications outright. Maybe sometime in the future, will see. If any readers are really interesting in studying the Decennial and other cycles, then they might want to include that Foundation in their scope of research.

Before I finish this post, I must refer to something else I stumbled across whilst researching the decennial cycles. There's a Wikipedia article about one Johann von Lamont (December 13, 1805 – August 6, 1879) a Scottish-German astronomer and physicist. The article at http://en.wikipedia.org/wiki/Johann_von_Lamont includes this information: "His most important work was on the magnetis of the Earth. He performed magnetic surveys in Bavaria and northern Germany, France, Spain, and Denmark. He discovered a magnetic decennial period (ten-year cycle) and the electric current in the Earth closing the electric "circuit" creating the magnetic field in 1850. This roughly matched the eleven-year sunspot cycle discovered by Heinrich Schwabe." In fact, I remember seeing the sunspot cycle somewhere recently ... in a certain Elliottician publication correlating to U.S. financial markets .... although I'm not sure I agree with their EW counts but I can agree there's an obvious pattern in sunspots that seems to have some correlation with the markets ..... So .... no apparent cycles in nature, affecting the world? Hmmmmmmm!