Additional References
EWFF, April 2005
IN CASE YOU MISSED IT: In one of the biggest backward steps for Wall Street in many moons, Citigroup’s Smith Barney brokerage unit dismissed the entirety of its 10-person technical analysis group. The cutback, coming right when the world’s largest financial conglomerate most needs the services of a few good technicians, is a great big sell signal for money-center banks and a buy signal for the field of technical analysis.
EWFF, August 2002
The good news is that the new mood has also opened eyes to certain truths, like technical analysis. Market timing is now gaining esteem at a fast rate. Some of the sages of buy-and-hold strategies are even breaking from that camp and turning up in papers that expound the virtues of various indicators. A Financial Analysts Journal study on “Using The Yield Curve To Time the Stock Market” is an example. The discoveries come at a difficult time for many technicians. As noted above, many traditional measures and indicators are being redefined by the bear market. The FAJ’s yield-curve study notes that an inverted yield curve has produced “a larger mean excess return than a stock-only, buy-and-hold strategy,” but it fails to mention that the current bear market was not preceded by any such inversion. As the newly dominant social mood issues directions to the party, it switches all the signs around. This is consistent with the contrary tenets of the practice. In the wonderland of technical analysis, it makes perfect sense.
EWFF, June 2001
[Technical analysis] is ripe for a revival. In the larger picture, this trend is already underway, as the sudden rediscovery of technical analysis covered in the April and May issues demonstrates. This month, there was another big story that revealed, “The market is one big head case,” addressing the psychology of financial markets as a whole “new” field. Of course, this overlooks the MTA’s dedication to the cause for the last 30 years, not to mention 150 years of published cyclical and technical analysis.
The Elliott Wave Theorist, April 2000
Q: Investors’ exuberance, irrational or otherwise, for buying stocks is being sustained partly by a belief that traditional notions about company valuations and economic cycles no longer apply. “This time it’s different,” the bulls cry. Why are they necessarily wrong?
A: “Necessarily” is a good word because the widespread acceptance of the idea that economic cycles are dead answers the question of why we have economic cycles. People’s beliefs about trends are not scientific but emotional. When markets have gyrated, they believe in cycles. When they go down for a long time, they believe in doomsday. When they go up for a long time, they believe that cycles are dead and the only possible direction is up. If people were different in terms of being intellectually independent and commonly expecting trend change, then financial markets would be far more stable.
The Wave Principle of Human Social Behavior (1999)
Predicting the Popularity of Socionomics Itself
A socionomist even has the advantage of being able to anticipate changes in the public’s perception of his own value and the validity of his work. The reason is that social mood trends correlate with the waxing and waning of interest in such things as the very notion of cycles and waves of social mood. In uptrends, social cycles themselves are increasingly ignored, derided or declared dead as people credit policy makers with the power that brought about the uptrend. At tops, this sentiment is pervasive. For example, in September 1929, the president of the New York Stock Exchange, echoing the sentiments of bank presidents, economists and government officials, said, “It is obvious that we are through with business cycles as we have known them.” In 1991, a professor of political economy speaks for his entire profession in saying, “There are very few ideas in macroeconomics that serious economists agree on, but doubting the existence of the Kondratieff [cycle] is one of them.”29 In July 1998, an MIT professor declares that “this expansion will run forever” because we have “policy levers” to “keep the current expansion going.” At such times, the idea of social cycles is anathema to conventional thought.
In contrast, when negative social mood waxes and financial and economic changes become volatile, cycles become de rigueur as people search for causes of the dramatic events that caught them off guard. One such period was 1929 to 1949. R.N. Elliott was inspired to do his work by the 1929-1932 collapse, publishing books in 1938 and 1946. Nikolai Kondratieff sent his paper, “Long Economic Cycles,” to Harvard in 1935. Harvard economics professor Joseph Shumpeter expanded upon the Kondratieff cycle (which he called “the single most important tool in economic forecasting”) in his 1939 book, Business Cycles. Edward R. Dewey started the Foundation For the Study of Cycles in the 1940s after the U.S. government asked him to explain the causes of the 1929 crash. He and Edwin F. Dakin finished Cycles: the Science of Prediction in 1945.
Over the years, membership in the Foundation For the Study of Cycles fell when the stock market went up and rose when it corrected. In the 1960s’ uptrend, cycles were again passé and interest waned. In the corrective period of the 1970s, both the foundation and the Kondratieff cycle returned to prominence. Books such as Cycles – The Mysterious Forces that Trigger Events by Dewey (1971), The Kondratieff Wave by Shuman and Rosenau (1972) and Cycles by Dick Stoken (1978) were strong sellers, and cycle-oriented financial newsletters flourished. In the 1990s, cycles are once again considered relics of the past. With that background, you should not be surprised to learn that in 1997 and 1998, after 15 years of relentless bull market, the Foundation For the Study of Cycles ceased issuing publications after over half a century of operation.
Why does interest in this subject fluctuate? The answer is that people equate uptrends with predictability and downtrends with unpredictability. The Harper’s Weekly quote from 1857 includes the phrase, “never has the future seemed so incalculable as at this time.” Translation: “The market has been falling for several years.” The media constantly characterize market setbacks as injecting “uncertainty” into a picture of the future that presumably was previously as clear as crystal. I am not exaggerating when I say that this foible is timeless. Just this month, after a three-month decline in the Dow and a six-month decline in the Value Line index, The Wall Street Journal says, “The prevailing sentiment among investors these days appears to be confusion. And confusion is costly after so many years of predictability.”35 Translation: “After going up for years, the market has trended down for several months.” If uptrends are so predictable, then why didn’t these same investors know that one had ended in April/July and another had already begun six days before the article appeared? The timeless conceit that uptrends are predictable explains why people ignore cycles in uptrends and embrace them in downtrends.
Today, after decades of advance, virtually no one is interested in cycles of human behavior. Once again, the majority believes that the market and the economy are “predictable” and the uptrend will persist because policy makers have engineered social retrenchments out of existence. This belief is a luxury of a neocortex that is not threatened by a limbic system in fear of, or desiring to escape blame for, a serious economic setback. Of course, the extremity of today’s bemusement toward the outmoded idea of social cycles is yet another signal of an approaching major social mood reversal and the beginning of a trend back towards a general interest in patterns of social behavior. I hope this book contributes to that trend. |
