17 Year Stock Market Cycle Theory

Published February 13, 2014 | Categories: Digital Marketing

In my job I wear many hats and understanding data and information is a key part of what I do. My interest in understanding data doesn't always get confined to website and marketing activity. I've written post in the past about data analysis on cycling training activity to stock predictions with Google Trend data. It's in my nature to want to understand information, trends, causes, and implications of those. A friend of mine posted on Facebook the similarity between the stock chart trending from 1928 to 1929 leading up to the big crash and the past two years. I'll admit it was a very intriguing chart. While on the surface they seemed very similar, in fact similar enough that I wanted to dive deeper and understand the connections.

What I was able to find was that although there are a lot of similarities in the peaks and valleys, when you look big picture at the overall context, it's not quite as scary. When you look at the years leading up to the similarities, that's when you see the similarities disappear. The biggest dissimilarity I notice is that the trend in 1929 was pushing the stock market to nearly double in the peaking of a bubble while the upward trend of the past two years is a recovery from a bubble crash. So one is recovery, albeit a slightly fast one that will most likely have a correction in the near future, and the other seemed like a runaway train that was unable to survive under it's own weight.

A couple months ago, when I was doing some analysis I actually stumbled on a different trend that I found to be very curious. I am calling it the 17 year stock market cycle. The image below shows the most simplistic view of this. In my theory, I propose that there is a 17 year stock market cycle that has a 17 year growth pattern then a 17 year non-growth pattern. The trend seems to hold very tight since about 1915. I don't have enough financial analysis to understand the cause of the trend but can certainly make some hypothesis. Some of my "guesses" include a generational change. Perhaps the political and financial legislation and lobbying and decisions from those can result in large gains that "steal" from the next generation. Perhaps it's something completely unrelated to that. I think this chart also provides that additional context to the "scary" chart as described in the paragraph above.

The trend has been in full effect in a holding pattern for the past 14 years. If the 17 year stock market cycle continues, then my friend Jeff was right about one thing, the past 2 years can't continue at the rate it is going. According to this theory, the Dow Jones will have to end up around the 12,500 range in 2017 before beginning a 17 year growth pattern. In order for this to happen, we will have to see a very large correction dropping the Dow Jones by nearly 3000 points or approximately 20%. If this does happen, while the rest of the world is panicking and jumping off roofs thinking it's the end of the world, I will know that is the perfect time to sell all my possessions and buy as much Dow Jones industry fund stock as I can because in 17 more years, I will be a very rich man.

Just so everyone reading this knows, I understand this is fairly speculative and somewhat anecdotal as I am not a true financial analyst but found the data trends interesting enough to put this out there as an interesting read. I would love to hear from anyone with a true background in financial analysis. I hope you enjoyed...