George Lindsay Long Cycle (8/23/2020)

_{Image above from Carlson, Ed. George Lindsay and the Art of Technical Analysis (p. 143). New Jersey, FT Press, 2012.}

The Long Cycle is a stock market pattern, discovered by the 20th-century market technician George Lindsay, in which the market generally rises for about 15 years from an important low point, and afterward there are two severe declines separated by a weak advance. His analysis of market history showed that this pattern existed all the way back to 1798.

I consider a long cycle in the U.S. stock market to have begun at the 2009 low. The first chart above shows the idealized schematic, and the second chart shows my labelling of the current instance.

From the March 2009 low, the long cycle would predict a major low 7 years later (Point E). It turns out Point E occurred almost exactly on schedule, in Jan 2016. I take this as confirmation that we have a real long cycle underway.

The Dow’s activity since 2016 has some variance from the idealized schematic (I’m not sure what to do with Points F, G, H, I), but those details are not really critical.

The pattern predicts an important top (Point J) to occur 8 years from Point E. In our case, the Point J top is predicted for 2024. Point J is often the top of the entire long cycle, although it does not have to be. Following Point J, there are two severe declines separated by a weak advance.

An important top in 2024 jives with my Elliott Wave analysis. As I have written before, I think that an Elliott Wave bear market took place during Oct 2018 – March 2020, and that we are now in an Elliott bull market. The shortest period over the past century that I have classified as an Elliott bull market is 3 years, 7 months (June 1962 – Jan 1966). Therefore, the current bull market should last at least until late-2023.

Of the seven Elliott bull markets I have identified since 1920, three of them ended at less than 5 years duration (1932-1937, 1942-1946, 1962-1966). The other four (1921-1929, 1949-1960, 1982-2000, 2009-2018) lasted for at least 8 years. So, 5 years appears to be a significant barrier. I think this barrier will stop the current bull market around 2024-25 given the Lindsay long cycle.

One more point regarding the long cycle – Lindsay identified some situations where he considered multiple long cycles to be taking place at the same time. In our situation, given the socioeconomic severity of the coronavirus crash, it would not surprise me if a new long cycle took off from the March 2020 low. In which case, a major low should occur 7 years later. This low, in 2027, would likely correspond to the terminal point of the long cycle from 2009.

For historical reference, below is the chart showing what I consider to be a long cycle spanning 1982-2009.

1982 was the end of an extremely tedious bear market in which the nominal Dow went sideways in a wide range, and the inflation-adjusted Dow fell almost 80%, from 1966 to 1982.

I think that a long cycle began from the 1982 low. The duration from Point A (Aug 1982) to Point E (Oct 1990) was a little longer than usual (~8 years vs. 7 years). The duration from E to J (Jan 2000) was also a little longer than usual (~9 years vs. 8 years). However, it is common for the timing of these intervals to be off by a year of so.

Also, the highest point of that long cycle was Point L rather than J. These are examples of variances from the idealized structure, but the general form and timeline are there.