The rest of the article in case anyone is interested.Aegis...

The rest of the article in case anyone is interested.


Aegis Report
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We touched on this cycle briefly in mid June, in our report ‘Presidential and other cycles'. We noted that this cycle, as its name suggests, revolves around the 4 year US presidential term. Historically, the majority of elections have been followed by a down or mediocre year in the stockmarket.

The extent of the decline has been worse for second term presidents. On the surface this would imply that if Bush were re-elected, the effects on the sharemarket would be quite negative. However, our studies show that the Decennial cycle seems to override this negative influence of the Presidential cycle. The Decennial cycle, as its name suggests, revolves around the performance of the market in each year of the decade. This cycle was discovered in the 1920s and it has held up remarkably well over the years. This cycle calls for a top in the 9th year of the decade, a low in the 2nd year, with markets generally rising into the 7th year.

This 7th year is often marked by a very healthy correction, and a low point from where markets rise again. This is a very brief description, but the most trusted pattern in this cycle is the strength in the 5th year. Give that we are moving toward the 5th year of the decade, we looked at the Presidential cycle in relation to this Decennial cycle. We were enlightened by the results. If we look back to the US elections over the last 100 years, and take those election years that preceded the 5th year of the decade, 1984, 1964, 1944, 1924 and 1904, we note that the negative impact of the presidential cycle was overridden. In all those years the market moved higher.

As always, we do not take cycle or seasonal analysis in isolation - but when we view the action of the market as it moves into this longer-term positive timeframe, we can’t help but be encouraged.

Remember also that September and October precede the most profitable 3-month time period, November through to January. So if we do get a volatile period over the next couple of months, it would be an excellent buying opportunity.

That’s the US market, what about the Australian market – what signs of encouragement are we seeing. Importantly, the Banks. They have been a drag on the market since early this year, and now, after a period of poor performance, more and more analysts are turning negative on this sector of the market. We can’t help but think that this is a good contrarian indicator. We have been of the opinion that they would underperform, but several weeks ago we alerted readers to the positive potential that was developing. The jury is still out as to whether they will reverse their trend of underperformance, but last week we cautioned about being underweight this sector.

Since then we have seen a good bounce, and this adds to our positive view. We present the chart of the Banking index as our feature chart this week in order to highlight the current position to our readers.

We also note the performance of Newscorp, another stock that has been a real drag on our market. We have been caught on the wrong side of News for several months, as it promised upside, but never delivered. While we are still cautious, we do note that the momentum indicators are now at extreme oversold levels, and price has stabilised in recent weeks.

Imagine how strong our market would be if it wasn’t being held back by NCP and the Banks.



Cheers,
Ace.