two year Tech cycle

In July 2010 we published a piece suggesting the two year cycle low in Tech was scheduled to bottom in August. It did, and the stock market soared. This year, two years later, we are expecting it to bottom in July. Typically during bull markets it bottoms in Q3, and in Q4 during bear markets.

Approximately every 18-24 months the CPU speed of computers doubles. The semiconductor manufacturers that make these breakthroughs are usually the first ones to benefit. Historically, our back data is limited to 1994, whenever the Tech cycle bottoms and turns higher it carries the entire stock market with it. When it is in the bottoming process the general stock market has a more difficult time. Observe, in the chart above, the upswings in the stock market after the 1994, 1996 and 1998 cycle bottoms. Then after the 2002, 2004 and 2006 cycle bottoms. In the past, nearly 30 years, the only time the bottoming of this cycle and subsequent upturn has failed to produce a substantial rally was during the Tech crash of 2000.

Recently the Tech cycle bottomed in Q4 2008 and Q3 2010. In late 2008 the general stock market was still in a bear market which lasted until Q1 of 2009. After the stock market bottomed they both rallied substantially. In fact, some major Tech stocks bottomed in Q4 of 2008 ahead of the general stock market. After the August 2010 cycle low, again both the SOX index and the SPX soared for the next six months or so.

Currently the SOX index has been declining since March at SOX 445. The cycle peak actually occurred in early 2011 at SOX 474. Typically, after this cycle bottoms the SOX index rallies 50% or more, over a period of six or more months. The stock market, urged on by the growth indices (NDX and NAZ), usually makes some substantial gains as well. The SOX index is tracked in the public charts on page 2, link below. Best to your trading!

CHARTS: http://stockcharts.com/public/1269446/tenpp

About tony caldaro

Investor
This entry was posted in selected charts and tagged , , , , . Bookmark the permalink.

71 Responses to two year Tech cycle

  1. ctfp999 says:

    Hi Tony,

    Do you think SOX already bottomed in June or will it retest the low again in Q3?

    CT

    Like

    • tony caldaro says:

      CT Tough call at the moment.The last time it bottomed in Aug10 after the stock market had bottomed in July10.The stock market started an uptrend, but the SOX continued downtrending until August.Right now it looks like the SOX is nearing an uptrend confirmation, after downtrending for three months.The last time it downtrended from April to August before bottoming.This week should provide the answer.

      Like

  2. budfox9450 says:

    Tony, I am long SSO,and RJF at 3pm – But , planning to buy TBT at the Friday
    open. thinking 15,29 was the low…..using tight stops on the 2 equities….mention
    this only – because we discussed TBT the other day…..sorry about 104F….
    thats pretty hard to take anywhere, that must be rough….

    Like

  3. Lee X says:

    Whats with NAZ ? hmmmm

    Like

    • CB says:

      Lee, you mean relatively vs. spx?..

      Like

      • Lee X says:

        Hey C B

        ES VS NQ sorry my lady

        Like

      • CB says:

        OK Lee, (gee what’s the male equivalent of my lady..lol..) so you’re talking abt the equivalent in the futs…the same logic, though…it’s OK for $SPX to play a little catch-up now isn’t it since they’re now starting use energy more to juice that index..energy being a large %-age of $spx

        Like

      • Lee X says:

        hahahah I think its Yo !

        C B
        Perhaps If high oil meant an imminent recession what’s it mean now ?
        I”m a surprised as a baby playing peek a boo in these markets lately (last 10 years )

        Like

      • CB says:

        Hey Yo, “baby playing peek a boo” (which apparently gives you ur youthful appearance)…lol..that must mean a less imminent recession…how is that for a DA answer 🙂 …have a good one Lee.. ask ur dog to bark us some order, would ya …he looks very smart…

        Like

      • Lee X says:

        Thanks C B

        I just thought NAS kind of lagged a bit and SPX is being led by home builders ..so. who knows See ya !

        Like

      • CB says:

        Nice Lee..ur sector analysis..geez that kid sees everything…lol…last nite Lennar got a mega credit line to build in China…so the market…well overreacting & behaving immaturely as usual. Thanks Lee, Bye!

        Thanks Tony!

        Like

  4. This might be a screw you rally before it all falls apart.Just look at last year,last month of June we had a huge 1 week rally before hitting the lows.

    Like

  5. Ryan Parker says:

    Based on the count I have right now wave 5 = .618 x 1-3 @ 1300 and 5 = 1-3 @ 1280. This assumes that we just saw the top at 1334. It was much more convenient yesterday when 5 = 1-3 @ 1270 (potential double bottom) from 1324.

    Like

  6. Ryan Parker says:

    Getting the feeling a big move is coming. Just a question of direction! 1335 on SPX and 2883 on Naz Comp look like the hurdles that need to be taken out to begin getting bullish. That gap at 1335.02 is a biggie.

    Like

  7. optiontimer says:

    It is equally interesting that the VIX hasn’t moved nearly as much as one would have expected given the nearly 200 point rally in the Dow from yesterday’s low to today’s high. Heading into the FED every rally saw the CBOE VIX drop sharply. Today it barely nudged down 1%, and the SP VXX is actually flirting with being positive on the day.

    I smell a rat … and I smell a trap … but then again, when you live out of shopping cart and you share a bath with pigeons, you smell lots of things.

    Like

  8. Lee X says:

    all u can do is pick ur spots and set ur stops in ESU
    GL all !

    Like

  9. optiontimer says:

    I have to say … this rally is a bit more than I had expected … quite a bit more.

    Like

    • H D says:

      agree, 666.79 X2 1333.58

      Like

    • Lee X says:

      best avatar ever ! optiontimer

      Like

      • optiontimer says:

        It’s days like this that that make me fear that the man may soon come to repo my shopping cart

        Like

    • Ryan Parker says:

      Thinking the same. I don’t think anyone had a bullish count coming into today so one has to wonder if 1267-1363 was wave 1 up and 1363-1309 was 2 down and 3 up has begun. 1267-1363 didn’t look impulsive to me but one has to keep all options on the table here. Internals strengthening much more than anticipated. Next few days should be interesting but on the other hand one has to be on their toes for Q2 end/Q3 beginning shenanigans. Just see what happened last year. Big run to start Q3 only to roll over again.

      Like

  10. Lee X says:

    R2 in ESU @ 1327.25
    Who’s shorting here ?
    CL playing pivot pool
    it gave em the biz …shook em out and left the station

    Like

Comments are closed.