The 40-Week Cycle (Begin Again)

  • SumoMe

There are some things that can logically be explained.  And there are some things that cannot.  Welcome to the latter.

I first stumbled upon something known as the “40-Week Cycle” in the stock market sometime in the 1990’s. In all candor, I don’t even remember where I first read about it. And it is by known means “magical” or a panacea of the “you can’t lose in trading” variety.  But it is interesting.  And the latest “Bullish Phase” began at the close on 11/24/2017.

The 40-Week Cycle “System” Rules

*A new 40-week cycle begins every 280 calendar days with an original start date of 4/21/1967 (don’t ask me why that date, ask the guy who I can’t remember who wrote about it first).

*The 1st 140 calendar days of the cycle are considered “Bullish”

*The 2nd 140 calendar days of the cycle are considered “Something Other Than Bullish”

*The Bullish phase of the cycle ends after 140 calendar days OR after the Dow Jones Industrials Average suffers a decline of 12% or more in price from its price on the entry date (this has been triggered twice – in 1974 and in 2008)

*For “System” purposes the “System” holds the Dow Jones Industrials Average during “Bullish” periods and earns annualized rate on interest of 1% when not in the market.

FYI: The latest Bullish phse began at the close on 11.24.2017 and extednds through 4/13/2018 (or until the Dow closes below 20,731.03 if that occurs prior to 4/13/2018).

The Results

*$1,000 invested only during the “Bullish” phase as described above starting on 4/21/1967 grew to $42,301 through 11/24/2017

*$1,000 invested in the Dow Jones Industrials Average on a buy-and-hold basis starting on 4/21/1967 grew to $26,674 through 11/24/2017

$1,000 invested in the Dow Jones Industrials Average only during the “Other Than Bullish” phase starting on 4/21/1967 declined to $817

Figure 1 displays the “System” versus “Buy-and-Hold”.1Figure 1 – Growth of $1,000 invested using the 40-Week Cycle System (blue) versus Buy-and-Hold (red); 4/21/1967-11/24/2017

Figure 2 displays the growth of $1,000 only during the “Other Than Bullish” phase.  There is not a lot of rhyme or reason to the results during this phase – sometimes great, sometimes terrible, sometime in between.  Still, the bottom line is that the results are far worse than that generated during the “Bullish” phase.2Figure 2 –  – Growth of $1,000 invested in the Dow Jones Industrials Average only during the “Other Than Bullish” phase; 4/21/1967-11/24/2017

Figure 3 displays some summary results comparing the “Bullish” phase to the “Other Than Bullish” phase.

Measure Bullish Phase “Other” Phase
Average% +5.8% +0.2%
Median% +4.3% +0.9%
Std. Deviation% 9.3% 10.4%
Average%/Std Dev% 0.63 0.02
Maximum Gain % +42.0% +23.8%
Maximum Loss % (-13.2%) (-27.8%)
# Times UP 50 (76%) 36 (55%)
# Times Down 16 (24%) 30 (45%)

Figure 3 – “Bullish” phase versus “Other” phase

Figure 4 displays the period-by-period results

Start Bull End Bull Start Next Cycle DJIA Start Bull DJIA End Bull DJIA Start Next Cycle Bull% Other%
4/21/1967 9/8/1967 1/26/1968 883.18 907.54 865.06 2.8 (4.7)
1/26/1968 6/14/1998 11/1/1968 865.06 913.62 948.41 5.6 3.8
11/1/1968 3/21/1969 8/8/1969 948.41 920.00 824.46 (3.0) (10.4)
8/8/1969 12/26/1969 5/15/1970 824.46 797.65 702.22 (3.3) (12.0)
5/15/1970 10/2/1970 2/19/1971 702.22 766.16 878.56 9.1 14.7
2/19/1971 7/9/1971 11/26/1971 878.56 901.80 816.59 2.6 (9.4)
11/26/1971 4/14/1972 9/1/1972 816.59 967.72 970.05 18.5 0.2
9/1/1972 1/19/1973 6/8/1973 970.05 1026.19 920.00 5.8 (10.3)
6/8/1973 10/26/1973 3/15/1974 920.00 987.06 887.83 7.3 (10.1)
3/15/1974 7/8/1974 12/20/1974 887.83 770.57 598.48 (13.2) (22.3)
12/20/1974 5/9/1975 9/26/1975 598.48 850.13 818.60 42.0 (3.7)
9/26/1975 2/13/1976 7/2/1976 818.60 958.36 999.84 17.1 4.3
7/2/1976 11/19/1976 4/7/1977 999.84 948.80 918.88 (5.1) (3.2)
4/7/1977 8/26/1977 1/13/1978 918.88 855.42 775.73 (6.9) (9.3)
1/13/1978 6/1/1978 10/20/1978 775.73 840.70 838.01 8.4 (0.3)
10/20/1978 3/9/1978 7/27/1979 838.01 842.86 839.76 0.6 (0.4)
7/27/1979 12/14/1979 5/2/1980 839.76 842.75 810.92 0.4 (3.8)
5/2/1980 9/19/1980 2/6/1981 810.92 963.74 952.30 18.8 (1.2)
2/6/1981 6/26/1981 11/13/1981 952.30 992.87 855.88 4.3 (13.8)
11/13/1981 4/2/1982 8/20/1982 855.88 838.57 869.29 (2.0) 3.7
8/20/1982 1/7/1983 5/27/1983 869.29 1076.07 1216.14 23.8 13.0
5/27/1983 10/14/1983 3/2/1984 1216.14 1263.52 1171.48 3.9 (7.3)
3/2/1984 7/20/1984 12/7/1984 1171.48 1101.37 1163.21 (6.0) 5.6
12/7/1984 4/26/1985 9/13/1985 1163.21 1275.18 1307.68 9.6 2.5
9/13/1985 1/31/1986 6/20/1986 1307.68 1570.99 1879.54 20.1 19.6
6/20/1986 11/7/1986 3/27/1987 1879.54 1886.53 2335.80 0.4 23.8
3/27/1987 8/14/1987 12/31/1987 2335.80 2685.43 1938.83 15.0 (27.8)
12/31/1987 5/20/1988 10/7/1988 1938.83 1952.59 2150.25 0.7 10.1
10/7/1988 2/24/1989 7/14/1989 2150.25 2245.54 2554.82 4.4 13.8
7/14/1989 12/1/1989 4/20/1990 2554.82 2745.65 2695.95 7.5 (1.8)
4/20/1990 9/7/1990 1/25/1991 2695.95 2619.56 2659.42 (2.8) 1.5
1/25/1991 6/14/1991 11/1/1991 2659.42 3000.50 3056.40 12.8 1.9
11/1/1991 3/20/1992 8/7/1992 3056.40 3276.40 3332.18 7.2 1.7
8/7/1992 12/24/1992 5/14/1993 3332.18 3326.20 3443.00 (0.2) 3.5
5/14/1993 10/1/1993 2/18/1994 3443.00 3581.11 3887.46 4.0 8.6
2/18/1994 7/7/1994 11/25/1994 3887.46 3688.42 3708.27 (5.1) 0.5
11/25/1994 4/13/1995 9/1/1995 3708.27 4208.18 4647.54 13.5 10.4
9/1/1995 1/19/1996 6/7/1996 4647.54 5184.68 5697.11 11.6 9.9
6/7/1996 10/26/1996 3/14/1997 5697.11 6007.02 6935.46 5.4 15.5
3/14/1997 8/1/1997 12/19/1997 6935.46 8194.04 7756.29 18.1 (5.3)
12/19/1997 5/8/1998 9/25/1998 7756.29 9055.15 8028.77 16.7 (11.3)
9/25/1998 2/12/1999 7/2/1999 8028.77 9274.89 11139.24 15.5 20.1
7/2/1999 11/22/1999 4/7/2000 11139.24 11089.52 11111.48 (0.4) 0.2
4/7/2000 8/25/2000 1/12/2001 11111.48 11192.63 10525.38 0.7 (6.0)
1/12/2001 6/1/2001 10/19/2001 10525.38 10990.41 9204.11 4.4 (16.3)
10/19/2001 3/8/2002 7/26/2002 9204.11 10572.49 8264.39 14.9 (21.8)
7/26/2002 12/13/2002 5/2/2003 8264.39 8433.71 8582.68 2.0 1.8
5/2/2003 9/19/2003 2/6/2004 8582.68 9644.82 10593.03 12.4 9.8
2/6/2004 6/25/2004 11/12/2004 10593.03 10371.84 10539.01 (2.1) 1.6
11/12/2004 4/1/2005 8/19/2005 10539.01 10404.30 10559.23 (1.3) 1.5
8/19/2005 1/6/2006 5/26/2006 10559.23 10959.31 11278.61 3.8 2.9
5/26/2006 10/13/2006 3/2/2007 11278.61 11960.51 12114.10 6.0 1.3
3/2/2007 7/20/2007 12/7/2007 12114.10 13851.08 13625.58 14.3 (1.6)
12/7/2007 4/25/2008 9/12/2008 13625.58 12891.86 11421.99 (5.4) (11.4)
9/12/2008 10/6/2008 6/19/2009 11421.99 9955.50 8539.73 (12.8) (14.2)
6/19/2009 11/6/2009 3/26/2010 8539.73 10023.43 10850.36 17.4 8.2
3/26/2010 8/13/2010 12/31/2010 10850.36 10303.15 11577.51 (5.0) 12.4
12/31/2010 5/20/2011 10/7/2011 11577.51 12512.04 11103.21 8.1 (11.3)
10/7/2011 2/24/2012 7/13/2012 11103.21 12982.95 12777.09 16.9 (1.6)
7/13/2012 11/30/2012 4/19/2013 12777.09 13025.58 14547.51 1.9 11.7
4/19/2013 9/6/2013 1/24/2014 14547.51 14922.02 15879.11 2.6 6.4
1/24/2014 6/13/2014 10/31/2014 15879.11 16775.68 17390.13 5.6 3.7
10/31/2014 3/20/2015 8/7/2015 17390.13 18127.65 17373.38 4.2 (4.2)
8/7/2015 12/25/2015 5/13/2016 17373.38 17552.17 17535.32 1.0 (0.1)
5/13/2016 9/30/2016 2/17/2017 17535.32 18308.15 20624.05 4.4 12.6
2/17/2017 7/7/2017 11/24/2017 20624.05 21414.34 23557.99 3.8 10.0
11/24/2017 4/13/2018 8/31/2018
8/31/2018 1/18/2019 6/7/2019
6/7/2019 10/25/2019 3/13/2020
3/13/2020 7/31/2020 12/18/2020
12/18/2020 5/7/2021 9/24/2021
9/24/2021 2/11/2022 7/1/2022

Figure 4 – 40-Week Cycle; 1967-2017

Summary

For better or worse, the latest “Bullish” phase began at the close on 11/24/2017 and will last through 4/13/2018. Does this mean the stock market is guaranteed to keep rising?  Not at all.  But it may be one more potentially favorable sign.

Jay Kaeppel

Disclaimer:  The data presented herein were obtained from various third-party sources.  While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information.  The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.

One thought on “The 40-Week Cycle (Begin Again)

  1. Jay, thanks for this and all the articles on this website. I always enjoy finding something interesting to read when I pop in. It is much appreciated by this reader.

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