Additional References
Short Term Update, December 30, 2005
It’s over. No, not the year 2005; we all know that. The Dow’s perfect streak of never finishing with a loss “in the fifth year of the decade” is now kaput (a technical term). In our February 2005 issue (see page 4), EWFF forecast an end to this decennial pattern, which was first discussed back in 1939 by Edgar Lawrence Smith in his book, “Tides in the Affairs of Men.” One of the reasons we thought this string of up closes would be broken was the “sudden market-wide awareness” of the pattern. Recall that early this year news stories of the year “5” phenomenon in the Dow were ubiquitous. It was one of the main reasons the bulls used as to why investors should be fully positioned in stocks for 2005. I believe it may have been Joe Granville who said, “when it''s obvious, it''s obviously wrong.” While this may sound glib, there is solid technical logic behind it. When a trend has been in force for so long that it is embraced by “the masses,” there are scant few left to act on it that haven’t already done so. The odds for a reversal, or an end to the pattern become high (as a corollary, remember all the “talk” about the Hindenburg Omen earlier this year?). Whether the year “5” phenomenon was indeed a trend or just numerology, we’ll leave for others to discuss. Our angle is that the transition from a Grand Supercycle degree bull market to a bear market of equal degree means that a number of the previous bull market’s “old reliables” will stop working. We can now add the year “5” phenomenon to the list that includes “the market never closes down three straight years” and “there has never been a year when the Dow’s January low closed under the preceding December closing low,” among others.
EWFF, February 2005
We’ve never seen so much commotion and belief in a historic timing pattern as there is now in the “fifth year of the decade” phenomenon. Edgar Lawrence Smith first wrote about the decennial pattern in his book, Tides in the Affairs of Men, in 1939. Six and a half decades later it has suddenly become accepted wisdom that the years ending in five are always up years for the stock market. The sudden market-wide awareness of the decennial pattern and the fact that the long-term trend has reversed course signals the high potential for an end to this string. When high degree trends switch directions, they break all the rules. For instance, during the decennial pattern’s positive string dating back to 1905, there has never been a year when the Dow’s January low closed under the preceding December’s closing low. That is, until this year, breaking the 100-year-old pattern. If the market has completed its transition to a Grand Supercycle degree bear market, as our work overwhelming indicates it has, it is time for many of the bull market’s “old reliables” to stop working. |
