Trends within a trend: Is this market in a Super Cycle?

Investing is basically spread across two schools of thought: on price movement and how to predict it. The fundamentalist concentrate on determining the value of a company to make a successful investment. On the other hand, technicians base their predictions on historical price movements, with the core belief that all positive and negative aspects of a company or an asset class are reflected in prices.

For all of those who had read my earlier posts on the ongoing FIBONACCI cycle of markets, this should serve as an addendum. The thesis of this article on Bank Nifty is very similar, showcasing how the index is in a sub-trend within a TREND, which in turn is part of a Mega Trend and so on.

UNDERSTANDING TRENDS:


As Brian Millard had put it in, in his book Channels & Cycles – A tribute to JM Hurst, trends are additive, they are made of small blocks, where long-term trends can be split into short-term blocks, and they in turn can be broken into even shorter-term blocks and so on.

This basically means that human behaviour repeats itself. Asset prices move in a synchronised behaviour over years, decades and generations.

The three charts below for the key index will show how market psychology has remained more or less very similar in the current phase, to the last decade as well. And it could give you a glimpse of what could be in store for the near future.

The following is a chart of Bank Nifty from start (i.e. early 2000) till date, almost 18 years.

Just follow the Curved Loop, which will give you a basic understanding of how the market has behaved over the past two decades.

TREND WITHIN A TREND

Interestingly, the behaviour in the last two decades is almost a replica of market behaviour in the first decade, i.e. 2000-2008.

Check this chart below. And do so with emphasis on the same Curved Loop.

Isn’t this interesting? I am sure you all believe that the so-called fundamentals of the economy/sectors have changed in this new decade compared with the last decade.

However, the more it has changes, as per our belief, the more it has remained the same!!

This is a classic example of a ‘Cycle within a Mega Cycle’ analysis.

I sense that a Super Cycle could also exist in this phase, and something which could be of a nature shown below. Again, follow the Curved Loop.

This is the yearly chart of the same index. And for all we know, we could just be in the first phase of a Super Bull Cycle.

Isolating such trends can be of use as a basis for investment decision. Investors who wish to place money on a long-term trend will be able to time their entry into such a trend for maximum profit, while short-term traders can choose a short-term trend to suit their investment style.

Investment thus becomes much easier a process. All you need to ask yourself is what’s your timeframe!