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48  MUNICH CONFERENCE START WW Jt FAU OF FRANCE PEARL HARBOR « PRICE CONTROU GERMAN SUR¹NOER JAPANESE SURRENDER END PRICE CONTROLS irriOJRRENCY 0EVAUUATI0»4S >*SOUTH KOREA
reduces its duration to between six and seven weeks. This is the 1936-1951 counterpart of the 6.5-week cycle of the model! What about Number 5? There are 44!4 samples present in 884 weeks. The average duration is 19.85 weeks. Sound familiar? Number 4. An average of 34.6 weeks is obtained from the 25V4 samples present. This is the 1935-1951 equivalent of the (nominal) nine-month component of the model. Number 3. The average duration of the 13 samples in 204 months is 15.7 months or 67.98 weeks. Familiarity again! Number 2. Here sample durations are as follows; • Sample I 38 months • Sample 2 43 months • Sample 3 28 months • Sample 4 54 months • Sample 5 58 months (the total duration estimate for this one is based on the one-half cycle present) Now we note the same effect weve seen before, only this time in connection with our 54-month cycle: short durations associated with low magnitudes-and magnitude fluctuation with time! In fact, the diortest sample (28 months) is associated with the 1942, 43, 44 time period in which oscillation magnitude almost went to zero. So there seems to be Uttle doubt that Number 2 is the 1935-1951 equivalent of the 4.5-year component of the model. Number 1. This one represents the sum of all possible oscillations longer in duration than those weve been calling (nominally) 54 months. Notice the high points in this curve at A and C, and the lows at and D. rAe.se are highs and lows of the nine-year periodic oscillation of our modelf Once more a comment on randonmess: It is perfectly evident that none of the smooth curves one through six are random in nature, yet the sum of these six non-random curves adds up to the curve representing the DJ closing prices within ±1%! If non-random motion makes up all except ± 1% of the total price motion, what then is left to be random? Now weve been unable to explain the price action of the average during this time period by looking to historical events. Lets see if we can do better looking at things cycUcally, starting with the one question mark we had left over-the fall of France. Look on the chart just prior to this event and you will see three vertical lines with arrows on the ends. These lines relate a specific part of the DJ price action to the cychc constituent status at the time in question. The earliest of these three lines shows the following: 1 - Component 1 is moving rapidly downward. 2. Component 2 is going over a top and contributing nothing. 3. Component 3 is hard down.
4. Component 4 is going over a top and contributing nothing. 5. Component 5 is hard up. 6. Component 6 is hard up. So whats happening to the average as a result? Two components are going up, two are going down, and two are sidewise-and (you guessed it!) the average is going sidewise (with a tiny uptick due to component 6). Now try the next line to the right: 1. Component 1 is stfll down. 2. Component 2 is still sideways. 3. Component 3 is still down. 4. Component 4 is just starting down. 5. Component 5 is now going over the top and contributing nothing. 6. Component 6 is still hard up. Two going down, one just starting down, and one going up. Whats the average doing? Its just starting down-gently. Now look at the third Une: 1. Component No. 1 is still down. 2. Component No. 2 is still sideways. 3. Component No. 3 is still down. 4. Component No. 4 is now hard down. 5. Component No. 5 is now hard down. 6. Component No. 6 is just going over the top and becomes hard down right through the precipitous drop preceding the fall of France! Five down and one sideways-and the bottom dropped out! Now remember this: each of these components had existed and had been oscillating regularly up and down for years before the events leading to the fall of France even had their embryonic beginnings! Was it then anticipation of the fall of France that caused the market to drop? HERE IS HOW LONG-RANGE CYCLICALITY AFFECTS THE MARKET If we caimot find historical events which relate to market activity, lets go back to the average and pick significant turning points and see if they relate to cycIicaUty, and how. Well take eight cases in this 17-year time span. Case I: The Major Market Rise Starting In Early 1935. Component 1 hard up Component 2 bottoming and heading up Component 3 bottoming and heading up Component 4 bottoming and heading up Component 5 bottomed and heading up Component 6 bottomed and heading up No wonder the market went up!
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