Is the Big Cycle Turning?

By Ron William, CFTe, MSTA

Is the Big Cycle Turning?

The approach featured in T3 is global, multi-asset, top-down; grounded in behavioral technical analysis, driven by cycles, based on the Roadmap signature model of Robin Griffiths, published in Mapping the Markets. This model is fractal, asymmetric shaped, fueled by the greed-fear pendulum swing of investor sentiment during a business cycle (Figure 1).

The DNA blueprints are adapted from the work of Austrian-born Harvard professor Joseph Schumpeter and his infamous three-cycle schema focusing on Kondratiev (K-wave), Juglar and Kitchin cycle (Figure 2). The average timespan of each cycle is 54, 10, and 4 years, embedded with harmonic relationships. Schumpeter acknowledged the periodicity of these waves was not fixed, but if the downward curve of each cycle turns in phase, then it would produce severe economic slumps, or even depressions. But successful application of this model often eludes market experts, not least during VUCA environments.

A closer examination of each cycle, using quantitative methods such as spectral analysis, highlights the Juglar pattern as most dominant, when testing over 100 years of stock market history (Figure 3). This does not imply that other cycles are less valid, merely that this cycle is most statistically viable. Perhaps for this reason, variations of the same timing pattern was discovered by other experts, notably British economist William Jevons postulating a link to the cycle of sunspot activities on harvests. More to follow on this in a future FSC publications.

However, one of the earliest theorist of the ten-year cycle, French economist Clément Juglar argued that causality of “prosperity, crisis and liquidation” was more important than timing patterns, stressing that it is necessary to understand how each phase behaves during “la réaction qui se succède à l’action.” Moreover, the outbreak of a crisis is only possible when equilibrium has become unstable.

Returning to the quantitative analysis, the last of the three-cycle schema; Kitchin, is also highlighted as statistically important, but to a lesser degree. It’s also known as a 40-month cycle, which was heavily studied by Edward R. Dewey founder of the Foundation Study of Cycles, where I am now part of the team. A composite blend of Juglar and Kitchin predicts growing risk of mean-reversion into H2 2022 (Figure 4).

Meanwhile, our qualitative analysis of the Roadmap rotation signaled a very late-stage cycle into the 2022 new year based on growth, valuation, and technicals (Figure 5). Currently, growth momentum is falling, having recently peaked. Valuations of greed assets remain expensive relative to fear. Technicals remain internally weak, with 50% of global equity breadth in bear trends. Capital preservation is recommended in cash and quality long-duration government bonds. Style of equity factors is best in large cap growth, coupled with defensive sector positioning. Stay alert!

Ron William Bio

Ron William, CFTe, is a market strategist and educator/mentor with more than 20 years of experience working for leading macro research and institutional firms, producing tactical research and trading strategies. He specializes in global, multi-asset, top-down framework, grounded in behavioural technical analysis, driven by cycles based on the "Roadmap" signature model of veteran market technician Robin Griffiths, published in his book “Mapping the Markets.”

Ron also applies a "market & mind" approach at IntensiChi, using the latest techniques in behavioural-risk models and neuroscience sourced from expert groups. He further supplements with mentoring/coaching, trained by the International Coaching Federation (ICF), and teaches a regulatory approved masterclass in Applied Behavioural Science, with investment, private banks and CFA Societies.

Ron's primary work, as part of his current institutional market advisory firm (RWA), acquired global industry recognition as winner of “Best FX Research” in 2020. Financial media programs and industry publications regularly feature his market insights, including “Is the big cycle about to turn?”, predicting the 2020 crash and alerting the “Minsky paradigm” of 2020 H2-2022.

Driven by high-integrity education, Ron serves as part of the education committee of the International Federation of Technical Analysts (IFTA), Development Director at the Foundation of the Study of Cycles (FSC), Head of SAMT’s Geneva Chapter, and an honorary member of ESTA. He is also a visiting lecturer at universities, active guest speaker for the CFA, CAIA and CISI, and senior teacher at colleges offering an accredited diploma in trading and investing.