How To Interpret And Profit From A Depreciation Cycle

The timing of the super-cycle in commodities and the incredible speculative rally in the US & Global markets over the past 4+ years is hard to ignore. Even though these rallies are exciting and profitable when everything seems to be skyrocketing, traders need to continue focusing on the broader market cycles.

The next 5+ years could be very interesting for global traders and investors. Not only are major cycles aligning to present a potentially large global market price rotation, but global central banks have also played a major role in supercharging the speculative bobble phase of nearly all global assets over the past 10+ years. These events are unique because the planet has not seen anything like this in more than 85+ years.

Today, we will explore how these cycles align and how traders should prepare to profit from the potentially broad market cycles over the next 10+ years.

Follow Consumers When Attempting To Understand Market Psychology

Consumer and trader psychology plays a massive role in the speed and amplitude of these major market cycles. Optimism drives significant risk-taking and the desire to share in the profit-taking of major market rallies. Fear and uncertainty usually shock people into a period of inaction—panic and pessimism shift traders into a process of protectionism and a move to safety.

We are currently still in the Euphoria Phase of the market trend. We are starting to see some fear and uncertainty move into trader psychology, but we have not yet seen a roll-over in price to qualify as the Complacency Phase. What this means is that we may still have more opportunities for a continued price rally soon.

I've often shared my belief that people need to be keenly aware of their surroundings and what is happening worldwide. For example, watching to see if commercial properties are suddenly filling with new shops or becoming vacant at a faster pace can tell you quite a bit about the local and regional economy. Simply paying attention to how friends spend their time and money and how businesses are operating can lead to a better understanding of the local economy.

Open your eyes and talk to people around your home town. Please pay attention to the global economic factors and ask questions about how people feel or how their business is doing. Sometimes, it is really that simple.

Stock Market Cycles

The 9~10 Year Appreciation/Depreciation Cycle Phase – And The Excess Transition Phase

I remember how the economy shifted before the DOT COM bubble burst and ahead of the 2008-09 housing market crash. Suddenly, the local economy and psychology shifted from optimism into fear, shock, and uncertainty. Many people I talked to were not aware of the broad market cycles that continue to drive market sentiment, but they were aware of the potential crisis that was building around them.

My research into various cycle phases suggests that a 9~10 year Appreciation/Depreciation cycle may be a key factor in understanding various cycle trends and lengths. I've also identified an 18 to 30-month transitional phase, which I call the "Excess Phase," that takes place near the beginning of new Appreciation/Depreciation cycle phases.

The major Appreciation/Depreciation cycle phase usually drives price advance or decline periods. The Excess Phase, the transitional 18 to 30 month period when one cycle ends and another begins, usually reflects a very opportunistic and profitable extreme cycle process. This is often when extreme volatility in market trends can produce very large price trends and sudden price rotations.

Gold Appreciation Monthly Chart

Global Market May Shift Into The Depreciation Cycle Suddenly In The Future

Shortly after the COVID-19 crisis in February 2020, I published an article related to the expectations of a “transitory inflation” trend. My research suggested the US markets would rally after the COVID-19 bottom, then peak and roll over into a diminishing cycle amplitude-phase – possibly lasting many years.

Although my research suggested this peak in cycle amplitude was likely in early 2021, it appears the markets pushed the expansion cycle phase higher throughout most of 2021 and suddenly shifted expectations near the end of 2021. Now, in early 2022, it appears we are shifting direction much faster than many traders expected. Yet, I will warn you that we have not broken into a broad market downtrend at this time. Instead, we still see the initial shift away from the Euphoria phase (possibly).

25+ Months Into An Excess Phase – What Next?

Currently, we're starting to see some shock in the markets, with the US major indexes rolling downward after the US Fed indicated tightening and rate increases are likely in 2022. My research suggested the transition from an Appreciation cycle into a Depreciation cycle took place in December 2019 – nearly 25 months ago. Additionally, over the past 25+ months, the market trends have resulted in a massive Excess Phase rally – likely prompted by the COVID crisis and a huge speculative wave by consumers/investors. What next?

At this point, it is a little too early to determine if this is a market peak or if the US markets continue to rally higher – attempting to establish a new higher peak in this Excess Phase Rally. Yet, one thing is certain; we are starting to see some real fear in consumers and traders due to the diminishing expectations related to the US Economic growth rates and the US Fed.

QQQ Weekly Chart

Traders should keep these broad market cycles near the front of their thinking as they attempt to navigate the trends over the next 12+ months. I believe 2022 could see another rally higher, possibly resulting in the SPDR S&P 500 (NYSE:SPY) moving above $500 before finally reaching a peak price level. After that peak is reached, I believe the US market will roll over into the Complacency phase and transition into the Anxiety/Denial phase fairly quickly.

How To Position Yourself For What May Come

These huge market cycle phases and trends will present incredible opportunities for traders. Learning how to prepare for these big cycle phases and profit from them should be near the top of the list for anyone with money in the markets right now. In my opinion, waiting to prepare for these shifting trends only creates great risks for investors/traders as the Excess Phase Peak appears to be nearing an end.