Today I’m taking a brief break writing about the land cycle to provide an update on the decade cycle as it applies to the stock market for 2024.
I like to do this to give readers a hint at the overall direction of US stocks as we progress further into the second half of the 18.6-year real estate cycle.
As I’ve mentioned previously, there’s good reason to look to the US for turns in trend.
We might be in Australia, but the US economy leads the 18.6-year cycle — and movements in the Aussie stock market generally correlate to its lead.
Note: This is similar regarding the direction of real estate prices.
Historically, US median property values have peaked prior to the Australian market peak.
For example, in the last cycle, they peaked in 2006. The Australian median dwelling value, however, peaked in 2008.
In the previous cycle before this, the US market peaked in 1989, while the Australian market peaked approximately one year later in 1990.
We could expect this pattern to repeat at the end of this cycle as well.
Time will tell.
Hence why we look to the US in stocks and property prices to identify times of a potential turn in trend — particularly as we approach the end of the cycle.
For stock market investors, the decade cycle gives a very good indication of the market’s overall direction.
I’ll demonstrate this as we analyse the results for 2023.
The vibration of the US equity market is more attuned to the decade cycle than it is to the 18.6-year cycle.
Although, the timing of the 18.6-year cycle always needs to be taken into context when analysing the results.
This is due to the very nature of land. We need it for survival, yet well-facilitated land is limited in supply.
The economic system lends predominately against land value as collateral. For this reason, the land cycle acts as gravity to all other cycles.
When land values collapse through a flood of foreclosures and excess stock hitting the market, the economy cannot help but go into recession/depression.
The data for this edition has been correlated by my close friend and colleague Dr Kalvert K Clark, author of Dow Song and Dow Dance.
Kalvert has spent many years studying the decade cycle and his analysis is extremely helpful in understanding the topic at hand.
To quote Kalvert:
‘We can look back on our life to the times or periods when we had a “great time” or when we had a “bad time” i.e. when we had more money than usual, more love than usual, or more luck than usual.
‘It is these times or periods that need to be examined.
‘It is my objective to find these so called lucky times on the Dow Jones Index and by inference the lucky times of most of the world markets, as most markets follow the Dow.
‘On a mundane level it can inference the happier and sadder times in the world. This may influence the times as we plan our lives.’
What is the decade cycle?
American Journalist Charles Dow founded the Dow Jones Industrial Average in 1896.
It informed his research into market movements.
It was the first index of stock market activity and is therefore the oldest continuing US market index.
As such, it gives us a good deal of historical data to work from going right back to the beginning of the last century.
Charles Dow developed a series of principles for understanding and analysing market behaviour, which later became known as Dow theory.
It formed the groundwork for technical analysis.
From his research, Dow concluded that financial crises were both periodic and predictable.
He noted that they tend to occur at intervals of ‘a little more than ten years’.
And despite changes to the DJI’s makeup — now measuring the performance of the 30 largest companies listed on the stock exchange — it continues to move to the same beat.
The decade cycle as discovered by Dow
Dow concluded that for each 10-year period, there was one primary bull market and one primary bear market.
In other words, on average, one crash per decade — hence known as the ‘decade cycle’.
Looking back on history, you can see the pattern for the main holds.
These are the dates of the major recessions over the last 300 years:
1701, 1711, 1731–32, 1742, 1752, 1763, 1772–73, 1783, 1793, 1804–05, 1815, 1825, 1836, 1847, 1857, 1866, 1873, 1884, 1893, 1897, 1907, 1921, 1932, 1937, 1949, 1955, 1961, 1974, 1982, 1990–01, 2001–02, 2008-10, 2020…(2027/8?).
The only variation to the ‘one downturn per decade’ analysis was the very few times where two downturns hit in the same decade:
- The 1890s
- The 1930s
- The 2008 downturn, which spanned into the following decade
- And we would expect the same to happen this decade — with the real estate cycle-led recession downturn to occur at the end of this decade around 2028/9
It’s important to note that these dates correlate with the midcycle and end of cycle recessions in our 18.6-year cycle.
Working back from the most recent dates, you will be able to see the pattern clearly.
2020 — midcycle recession
2008–10 — end of cycle recession
2001–02 — midcycle recession
1990–91 — end of cycle recession (and so on)
WD Gann on the decade cycle — yearly analysis
Moving on from Dow’s observations, the best analysis on the decade cycle comes from forecaster and author WD Gann.
I’ve previously introduced you to WD Gann and other stock market forecasters that used the 18.6-year cycle to predict movements in US stocks.
Some of those forecasts forewarned of the 2008 downturn and 2020 downturn 150 years in advance.
Hence why I still incorporate their work (and others), nearly a century old now, today!
If you haven’t yet read those editions — please do so. Their research forms the base of the analysis in this edition.
Put simply, Gann’s analysis worked on the concept that what happened in the past will repeat in the future.
He said the following:
‘By studying the yearly high and low chart and going back over a long period of time, you will see the years in which bull markets culminate and the years in which bear markets begin and end.
‘Each decade, or 10-year cycle, which is 1/10th of 100 years, marks an important campaign.
‘The digits from 1 to 9 are important.
‘All you have to learn is to count the digits on your fingers in order to ascertain what kind of a year the market is in.’
It sounds simple — and to some extent it is!
Gann broke it down like this:
- Years ending in 1 — ‘In a new decade is a year in which a bear market ends, and a bull market begins. 1901, 1911, 1921.’
- Years ending in 2 — ‘The second year, is a year of a minor bull market, or a rally in a bear market will start at some time. 1902, 1912, 1922, 1932.’
- Years ending in 3 — ‘The third year starts a bear year, but the rally from the 2nd year may run to March or April before culmination, or a decline from the 2nd year may run down and make bottom in February or March, like 1933. Look up 1903, 1913, 1923.’
- Years ending in 4 — ‘The 4th year, is a bear year, but ends the bear cycle and lays the foundation for a bull market. Compare 1904, 1914.’
- Years ending in 5 — ‘The 5th year, is the year of Ascension, and a very strong year for a bull market. See 1905, 1915, 1925, 1935.’
- Years ending in 6 — ‘The sixth year is a bull year, in which a bull campaign which started in the 4th year ends in the Fall of the year and a fast decline starts. See 1896, 1906, 1916, 1926.’
- Years ending in 7 — ‘The seventh year is a bear number and the 7th year is a bear year, because 84 months or 84. degrees is 7/8 of 90.’
- Years ending in 8 — ‘The year ending in 8 is generally a bull year. Prices start advancing in the 7th year and reach the 90th month in the 8th year. This is when a very strong and a big advance usually takes place. Review 1898, 1908, 1918, 1928.’
- Years ending in 9 — ‘The highest digit and the 9th year, is the strongest of all for the bull markets. Final bull campaigns culminate in this year after extreme advances and prices start to decline. Bear markets usually start in September to November at the end of the 9th year and a sharp decline takes place. See 1869, 1879, 1889, 1899, 1909, 1919, and 1929 — the year of the greatest advances, culminating in the fall of the year, followed by a sharp decline.’
- Years ending in 0 — ‘Number 10 is a bear year. A rally often runs until March and April; then a severe decline runs to November and December, when a new cycle begins, and another rally starts. See 1910, 1920, 1930.’
Summary of years 1–10 is best used in combination with the
18.6-year cycle
Now, that’s a lot to take in, so let me briefly summarise.
You can divide the decade cycle into two periods.
- Years ending in 1–4 show overall moderate growth (it’s a period where the economy is, more often than not, transiting through and out of a recession).
- From year 5 onwards, the trend is bullish with large advances and sharp downturns.
To put it another way — look at the Dow back a hundred or so years, and you will find recessions frequently starting in years ending in 0.
The stock market generally bottoms in years ending in 1 and sometimes 2.
It rises in year 4.
It’s bullish in year 5.
It tracks sideways to upwards in year 6.
Year 7 is the 84th and the 90th month as Gann pointed out above. The market can often top out at this point with a sharp downturn.
A rally usually occurs in years 8 and 9 before dropping off to 0 once again.
Gann’s analysis on what to expect in each year is fairly consistent.
However, it is important to use it in combination with the 18.6-year real estate cycle (and others).
For example, the 8th year (generally bullish) has produced some very strong declines.
For example, 2008, the GFC.
The US stock market declined through the entire year of 2008 — until March 2009.
An expected result considering the significant collapse of land values in the US at the end of its 18.6-year cycle.
Therefore, although ‘in general’ these decennial rules Gann outlines are extremely useful and consistent, they must be assessed in context of the knowledge we share here.
Regards,
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Catherine Cashmore,
Editor, Land Cycle Investor
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