·          How Shemitah & various cycles influence the markets

·         It is interesting to know more about various cycles that market participants follow. One may not base his investment decisions on these cycles. Vikas Singhania Executive Director, Trade Smart Online Expertise : Equity - Fundamental More about the Expert...

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Sep 03, 2015, 09.24 AM | Source: Moneycontrol.com How Shemitah & various cycles influence the markets It is interesting to know more about various cycles that market participants follow. One may not base his investment decisions on these cycles. Vikas Singhania Executive Director, Trade Smart Online Expertise : Equity - Fundamental More about the Expert... getm3_share_count(2879361); 3 1 Google +0 11 Comments (2) Like this story, share it with millions of investors on M3 How Shemitah & various cycles influence the markets It is interesting to know more about various cycles that market participants follow. One may not base his investment decisions on these cycles. Post your opinion here .blub_12{ color:#2b5797; font:bold 12px Arial, Helvetica, sans-serif; text-transform:uppercase;} Vikas SinghaniaMarkets, like business are known to follow cyclical behaviour. Every boom is followed by a bust with intermediate periods of distribution and accumulations. Post August 24, 2015 crash- 'Manic Monday' – a little known Biblical term called “Shemitah’ has caught the market attention. Shemitah, the last year of a seven-year cycle in the Jewish calendar, has several times in the past brought immense financial hardships to the world. The biggest Wall Street crash of 1987 happened during Shemitah and so did the bond market carnage of 1994. The 9/11 terror attack happened a day after Shemitah in 2001 and Lehman Brothers filed for bankruptcy and the subsequent 777-point fall in Dow Jones in 2008 also happed around Shemitah. What has caught the market attention is the fact that Shemitah talks about such crashes occurring every seven year. Legend goes that the last year of a seven-year cycle in the Jewish calendar have brought in immense financial hardships to the world.It so happens that 2015 is the last year of the present seven year cycle. Believers say that the last few days of the Shemitah are the most painful. The present Shemitah ends on September 13, 2015, which falls on a Sunday. But this time around the last day coincides with a solar eclipse. There are only two incidence of a solar eclipse coinciding with the Shemitah in the last 100 years. The first was in 1931, a few days after which England decided to abandon the gold standards which lead to a currency war among various nations, ending with the World War II. And the second was in 1987 when the world saw the greatest single day fall in the Wall Street till then. The greatest fall on the Wall Street apparently has been on September 29th 2008, when Lehman Brothers folded, the date was also the last day of the seven year cycle. Such market lore has always fascinated followers. But Shemitah is not the only cycle that has caught market attention. There are many followers of business and market cycles globally. In fact there are technical indicators designed to highlight the cyclicality in markets. Oscillators, which fluctuate between a value of zero and 100, capture the cyclicality in price movements. Business cycles have a strong correlation with the market. Every boom is followed by a bust with intermediate periods of distribution and accumulations. Among the most famous business cycles is that suggested by Kondratiev. Such cycles are of longer term duration, lasting roughly 60 years. The end of these cycles is accompanied by economic troubles such as the first Great Depression in the USA in 1870s, the Great Depression of 1930s and the current extended recession which started since 2000. The Kondratiev cycle consists of two ‘Secular’ cycle which lasts for around 30 years. In these cycles bull phase is for around 10 years and the bear is for 20 years. Within the Secular cycles there are Cyclical cycles which lasts for four years, one year of which is in a bull market while three in bear market. But the more popular cycles in the market are shorter terms ones. Like the Halloween cycle, more popularly known as the ‘Sell in May and Go Away’. This cycle suggests that historically winter months, starting from Halloween to May have given better returns than if one invests in May and sells in Halloween.The other popular cycle is investing in the month of January which has traditionally been the best month for investing in small and midcap stocks. The logic behind this cycle is that investors (foreign) generally allocate new capital in January after paying for taxes and other costs in December. The illiquid small and midcap shares normally give a strong move on incremental buying. But one of the most followed cycles in the market is the Presidential Cycle. As per the cycle, markets generally touch a new high in the third and fourth year of a President’s four year term. This is because as the President’s term comes to an end he generally tries to prop up the economy and market by pumping in liquidity in the system, in order to get re-elected. Most of the market highs have coincided with the end of the President’s term. Lunar cycles, which has been followed by Indian investors for years (especially the older generation) was popularised after a Harvard Business School Review published its study after researching returns in 25 worldwide stock exchanges. As per the review the annualised mean daily returns in G7 countries were higher around new moons than full moons. It was not slightly higher, as in the case of Halloween cycle, but two or three times higher during new moons in every single G7 country.Most of us would brush aside such cycles as coincidence or selective use of data. But the fact remains that these cycles work and has worked in most of the businesses and markets. Various ancient civilisations have made important decisions based on one cycle or the other. The Shemitah is also based on the principle that after every seven years of farming land should be allowed to recuperate for a year. And after every seven such cycle (49 years) it should be allowed to rest for two years. This explains the need for money at the end of cycles and selling of investments to meet the requirement. Many say that following cycles comes naturally to us as it is now in our DNA. Even if does not, knowing about them is better than being ignorant. Trading and investing like any other sport or business venture needs a little bit of luck.Author is executive director, Trade Smart Online