Year 2010 expectations within Presidential Cycle detailed by Mike Burk; Cycles Review Part XIV; and 2010 forecast by Chart of the Day

The Presidential Cycle is a 4-year cycle study based on the 4-year terms of the U.S. president. It's gained some respect in investment circles to the extent that certain times within it can be shown to have a statistically higher probability of gain or loss. Now - I'd like to caution that we don't want to set our portfolios based on it, especially not in terms of going long or short month by month simply by these averaged results. But the 2nd year of the cycle, which 2010 will be, does have correlations to significant market lows at some point during this year. Significant such as, dropping eventually into a low much below where the year starts out; before making up the loss in the last few months of that year. I'm going to be more careful in 2010 because, for example, Terry Laundry with his T Theory is showing technical reasons that the market may have high points in May and/or August (as I understand his T Theory at least through last week). And generally, based on Elliott Wave and other analyses, we're going to remain on guard for a high in January that may point to a low in March that will dictate whether any subsequent bounce has much strength. While I'm not making my own full forecast for 2010 yet, I'm going with a high in January, weakness into March, and then we'll see how high it can get into May or August. But now, let's get informed on this Presidential Cycle too:

Mike Burk has devoted a collection of webpages to his detailed analysis of the 4-year Presidential Cycle, at http://alphaim.net/research/Pres_Cycle/index.html.

Here are his opening paragraphs:

The Presidential Cycle

Copyright 2009 Mike Burk & Alpha Investment Management

The Presidential Cycle is made up of 4 years beginning with the year the president is inaugrated. The material presented here is structured to help to identify some of the characteristics and/or dynamics of that 4 year cycle in the stock market.
....
It is interesting that the MDD [maximum draw-down, meaning biggest loss] has occurred during the 2nd year of the cycle all but four times since 1933. Two of the four occurrences were during the Eisenhower administration and a 3rd during the 2nd year of the Reagan administration when the crash of 1987 (the 3rd year of his 2nd term) exceeded all declines in 1986. The fourth, in 2008, during the 4th year of the second George W. Bush term was the first time the MDD occurred on the 4th year since the Hoover administration in 1932.

Anyone having any interest in the statistical details of the Presidential Cycle by year, month, equity index, etc., should visit these webpages of his; and should also review this weekend's Technical Market Report by him, at Safe Haven, which is included among the links for this weekend's reading list being posted here on Sunday.

A visual depiction of the averaged Presidential cycle is also charted out by Chart of the Day at http://www.chartoftheday.com/20091223.htm?T - as shown and quoted below. First: One thing interesting about this is that the depiction is a little reminiscent of Manfred Zimmel's free public version of the Bradley siderograph model, at least for the concept of going up into March and then dropping off. But we know the Bradley dates are just turning dates - they can be highs OR lows. And Zimmel's depiction of the Bradley shows March as higher than May ... so I'm only trying to say, it's interesting there's a rough similarity, but it breaks down when you look close. (Another reason to look at the Bradley siderograph as providing turning dates only; maybe the actual will be like Zimmel's free public version turned upside down.). Just as we don't want to assume that 2010 will look exactly like the averaged Presidential Cycle, either. So - back to the Presidential cycle - below is the quote abd chart from Chart of the Day:

CHART OF THE DAY - December 23, 2009
Today's chart illustrates how the stock market has performed during the average mid-term election year. Since 1950, the first nine months of the average mid-term election year has tended to be flat/choppy. That choppiness was then followed by a year-end rally. One theory to support this behavior is that the party in power will make difficult economic decisions in the early years of a presidential cycle and then do everything within its power to stimulate the economy during the latter years in order to increase the odds of re-election.

Quote of the Day
"Never try to walk across a river just because it has an average depth of four feet." - Martin Friedman

Events of the Day
December 25, 2009 - Christmas Day
December 26, 2009 - Kwanzaa (1st day)
January 01, 2010 - New Year's Day - Rose Bowl - Sugar Bowl
January 03, 2010 - US Congress convenes
January 04, 2010 - Fiesta Bowl
January 05, 2010 - Orange Bowl

Chart of the Day is provided to subscribers without warranty of any kind and accepts no responsibility for its accuracy or for any consequences of its use. Journalists and bloggers may post the above free Chart of the Day on their website as long as the chart is unedited and full credit is given with a live link to Chart of the Day at http://www.chartoftheday.com.

So that's very interesting information provided by "Chart of the Day". One would expect some relationship between the general "4-year cycle" and the Presidential cycle. But the general 4-year cycle tends to analyze in terms of measuring trough low points, and then whether or not the market has respected the prior low by the time of the midpoint. There are many who believe that March 2009 was the 4-year cycle low. That's one reason why it will be important to see whether or not the market makes a lower low by March 2011.

A related point is that we'll need to see if 2010 brings a new all-time high in the Dow Industrials. Maybe that sounds strange to many readers. But Tony Caldaro has placed a bullish count on the Dow Transports. For that matter, if the Dow Industrials' "B" wave lasts through August and becomes an expanded flat "B" wave, then a higher high (than in October 2007) is theoretically possible. Strange, but possible. Either way, the "C" wave down afterward will be a steep downward move.

Much earlier in 2009, I posted a series of "Cycles Review" - so I'm adding this post as item fourteen (XIV) in that series. Anyone interested in the other types of cycles reviewed in that series, simply click on the "Cycles Review" label to see all posts in that topic. It's a fascinating round-up, including but not limited to the sunspot cycle (and yes, it's amazing how that correlates) and the Benner-Fibonacci which suggests a relative high peak sometime during 2010.