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The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears

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Chapter 7

Cycles

Three major cyclical patterns influence the stock market’s activity. Seasonal patterns influence monthly trading tones. Secular patterns, also called secular markets, occur when a stock or sector creates its own reality independent of the overall market. Apple is a famous example of a secular bull market as it has created new markets and new trading patterns after launching the iPhone and the iPad. Infamous examples of secular patterns include the rise and fall of real estate stocks and the Internet sector. Economic patterns, the third cyclical pattern, reflect the economy’s growth and contractions. All three cycles function like ocean tides, or the rising and setting of the sun.

Every month in the stock market has a distinct personality. Some months are bullish simply because they coincide with events that impact trading, including the April 15 tax deadline, or the end of mutual fund fiscal years. Some months are bearish because historic declines have tended to occur in that month. These seasonal patterns have developed over 100 years. Wall Street uses seasonal patterns to frame trading and investment decisions. These seasonal patterns influence stock trading like magnets attract slivers of metals—except for when they don’t. Major exogenous events—economic recessions, major bank failures, and the like—can override seasonality, which is why seasonality is mostly used as a prism to better focus the market, rather than as a foolproof trading system. Of course, the ...

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