“…one thing that everyone can probably agree on is that markets are cyclical and that securities do have recurring chart patterns. They aren’t predictable all of the time, but learning the fundamentals around market cycles can only help an investor in furthering their understanding of how things work.”
It is likely given the mostly sideways action of the US market the last two years, and referencing the info-graphic (below) of Wyckoff's phases, that the US market is transitioning from "mid-distribution" to "late-distribution." In this phase of the market cycle, Wykcoff suggests investors begin exiting long positions."Distribution: Occurs after a prolonged price advance. Sellers gain control of prices, which leads to decline."
Article: http://www.visualcapitalist.com/this-ma ... uy-stocks/
It's interesting to me that Nobel winner Robert Shiller, who built upon Graham and Dodd's notion of the cyclical nature of corporate earnings with his CAPE methodology , also believes that investors should vary their level of stock exposure through out the market cycle. Here's Shiller's thoughts on the use of CAPE:
Article: http://www.businessinsider.com/robert-s ... pe-2013-11"So I think the bottom line that we were giving – and maybe we didn’t stress or emphasize it enough – was that it’s continual. It’s not a timing mechanism, it doesn’t tell you – and I had the same mistake in my mind, to some extent — wait until it goes all the way down to a P/E of 7, or something...but actually, the lesson there is that if you combine that with a good market diversification algorithm, the important thing is that you never get completely in or completely out of stocks. The lower CAPE is, as it gradually gets lower, you gradually move more and more in."
For those long-term investors who believe the stock market is cyclical in nature, and that periodic changes to asset allocation has merit, our mentor Jack Bogle has suggested the utilization of guard rails around changes...
"Another sort of tactical allocation strategy involves changing the stock / bond ratio based on the relative outlooks for the respective financial markets. But since no one can ever be sure of the future path of the financial markets, the tactics I recommend would place severe restrictions on the extent of the allocation changes. Specifically, I would vary the desired strategic balance by no more than 15 percentage points on either side. A portfolio targeted at 50/50 would never have less than 35% in stocks nor more than 65%."
WYCOFF'S UNDERSTANDING MARKET STRUCTURE: