The economic long wave is a boom and bust cycle driving the global economy, first discovered by Russian economist Nikolai Kondratieff in
the 1920s. Kondratieff was researching debt, interest rate, production
and prices when he discovered the economic long wave. The Long Wave
Dynamics approach calculates the ideal Kondratieff long wave cycle as 56
years in length, but it can run long and short in Fibonacci ratios to
the ideal length in time.
The current long wave is of the long variety and began in
1949. Current analysis suggests that the current K-wave will end in
2013, running eight years and a Fibonacci ratio of 14.5% longer than the
ideal 56 years.
The current long wave is now in the Kondratieff Winter season. Most
investors wish they had access to this long wave season chart in 2007.
Every long wave has four seasons, just like a year. The approximate
length of a long wave season is 14 years, but they can run short and
long. Each season typically contains four Kitchin cycles with an ideal length of 42 months. However,
long wave seasons can have fewer or more Kitchin cycles than the normal
four.
The Kitchin Cycles: Harvard’s Joseph Schumpeter concluded that every long wave was made up of 18 smaller business cycles or Kitchin cycles. In more recent years, with more sophisticated charting technology and market analysis, the research conclusions of market analyst P.Q. Wall, that the long wave is make up of only 16 market cycles, has been validated. This is an essential distinction in cycle research.
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| Schumpeter’s model of how all the cycles worked together to produce long
waves included Kitchin cycles (the regular business cycle of 3-5
years) and Juglar cycles (7-11 years), with three Kitchins in each
Juglar. Schumpeter also wrote of the Kuznets cycles (15-25 years), but
didn’t put them in the charts below. The chart depicts the flow of the
Kitchin and Juglar cycles integrated in 56-year long wave cycles. Note
that Schumpeter’s model presented 18 business cycles in a regular long
wave. See: schumpeter_business_cycles.pdf |
Market cycles differ from business cycles in that they are identified
on an index chart, and not necessarily in the economic data as a
business cycle. However, they often correlate to the regular business or
trade cycle. Every long wave appears to be made up of 16 market
“Kitchin” cycles.
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| The chart above demonstrates our count of the 15 Kitchin cycles that have come and
gone in the current long wave since 1949 using stochastics. We are
currently in cycle number 16, with its expected conclusion in the year
2013. |
The 16
Kitchin cycles that make up a long wave are ideally 42 months in length,
but they are rarely ideal and fluctuate in length both short and long,
often in Fibonacci ratios of their ideal length in time. In each Kitchin Cycle there are ideally 36 dips or 36 Hurst "5 week" lows.
The Kitchin Third: The ideal Kitchin cycle is 42 months or 1277.5 days
in length, the ideal Kitchin Third is 14 months or 425.83 days. A Kitchin cycle is made up of 9 Wall Cycles, therefore each
Kitchin Third is made up of three Wall Cycles. PQ Wall had a general
rule of third last and weakest. This goes for the final Kitchin Third in
a Kitchin Cycle, but also goes for Wall Cycle #3, #6, and #9, or the
final Wall Cycle in each Kitchin Third. The Kitchin Cycle often unfolds
in the three Kitchin Third sections, but the Kitchin Third is not
typically as distinct as the other cycles.
Michael Riesner and Marc Müller: Technical Outlook 2013 - Since 1900 the US market has marked an important long-term bottom in the first 4 years of EACH decade, without exception (see table of Lance Roberts at left) ... The
last major low in the S&P 500 we saw in March 2009, which obviously
belongs to the last decade. So either we see in the current decade the
first failure of this pattern in more than 100 years or we will see
another bear market and subsequent bottom in the next 2 years, which
would then fit to both, the presidential and the decennial cycle. In
this context it is very interesting that if we combine both cycles and
look into the past, we are getting again a consistent picture of having a
high probability for seeing a new bear market in the next 24 months.
Since 1941 we had 7 presidential election cycles where the post-election
and mid-term year fell into the first 4 years of a decade. In 5 out of 7
cycles (72% probability) we saw significant bear markets and more
importantly, they were among the most painful bear markets of the last century! 
The Wall Cycle (aka 20-Week Cycle): The Wall cycle is the ideal trader’s cycle. Accurate technical analysis of the Wall cycle is essential for stock market traders. If you divide the ideal 56 year long wave by 144 you have the ideal Wall cycle. The mathematical relationship of these cycles indicates the Wall cycle is a miniature long wave. The approximate 20 week cycle (141.9 days) fluctuates short and long by Fibonacci ratios to the ideal length.
"By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again - and not capriciously, but at regular periods, and each thing in its own period, not another’s, and each obeying its own law … The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint."
Mark Twain