CYCLES THEORY
June 10, 1999
Cycles trading theories are based upon one simple phenomena: the price of some individual stocks seem to move up and down in a cycle-like manner. The trick to investing in stocks whose prices are cycling, then, is to time purchases and sales of stocks so as to buy at the low and sell at the high, something easier said than done.
Question: Do All Stocks' Prices Cycle?
No. Large and small - cap companies', alike, often do not experience cyclical pricing of their stocks. Some gradually creep up or down with little or no variation in the price path of the stock.
Question: What makes stock prices cycle?
Some businesses are keyed to goods or services which sell seasonally: like skis, suntan lotion, income tax preparers, etc. If, in addition, these companies report their quarterly earnings on a very regular basis, the stocks MAY cycle.
Question: Do the stocks of all cyclical businesses cycle?
No, not necessarily. We have found that relatively few stocks cycle from these potential canidates.
Question: Can I trade by using the cycles of a stock?
Yes. But it is difficult and dangerous, particularly if you are using cycles as your ONLY method to determine whether or not to buy stock. We Benders use cycles as just ONE tool in our arsenal. Cycles-only trading is as mad as day trading. We just don't do it. But being aware of cycling prices can lead to some profitable trading. It is too valuable a tool not to use appropriately. Buying is the most critical function that an investor performs. Richard Ney has an apt saying for the dangers of relying on any ONE method:
"the buyer needs a hundred pairs of eyes, the seller only one."
Question: How do I find stocks that cycle?
Look for them. Pull up the five-year chart on a canidate and look at what is happening to the stock each January 1st. Then go back and look for what is happening on or about July 1st. We can't help you any more than that. But here is a sample stock.
Sample Stock: Coldwater Creek
Coldwater Creek is a catalog company which makes 70+ percent of its sales during the Christmas season. It is a well run company that sells good merchandise that is trendy but also good value for the money.
Pull up its chart and see if you can spot these trends:
Up/Down Cycle #1:
December 15 - January ? = Up
January ? - April 1 = Down
Up/Down Cycle #2:
April 1 - July 1 = Up
July 1 - September 1 = Down
On to the Theories
of Richard Ney, by Michael Templain
