Don't laugh, this analyst says he has a buy-cycle built for you
Smirks and giggles. For Peter Elaides, they go with the territory. The Dow Jones popped above 1,300 last week. And plenty of sages on the Street say this rally has some oomph left in it. So why guffaw when a guy predicts 1,750 on the Dow by year-end?
Well, it's his method. When folks discover how Mr. Elaides makes such forecasts, most lump him in with crackpots who chart the market by tracing the bumps on a toad's back or counting bubbles in grape Nehi.
Elaides relies on cycle theory -- an arcane branch of technical analysis. He peddles the idea that the stock market follows rhythmic, recurring patterns. So? Most technicians look for patterns. Except most technicians don't know when the next ``head-and-shoulder pattern'' (or whatever) will form. Eliades claims his patterns will repeat on a regular schedule.
He also sells perpetual-motion machines, right?
No, he does not. But based on interpretations of 40 to 50 ``fairly consistent, interacting cycles,'' he has had some success pinpointing tops and bottoms in the stock market.
And there are fewer snickers these days, as well as more followers paying $220 a year to get his StockMarket Cycles bimonthly newsletter. Started in Los Angeles in 1975, it has attained a subscribership of some 2,000 -- a respectable figure in this business -- with ``a lot of brokers, some institutions,'' and, he says, a growing number of index options and futures traders.
``If I told you I never made a mistake, I'd be lying,'' Eliades grants. For instance, he missed the January rally and the bottom preceding last week's buying spree that pushed the Dow to a record 1,309.70.
But his record in timing the market remains better than most.
Three months before the Jan. 24, 1983, Dow Jones low of 1,013, Mr. Eliades cited that exact date as a near-term bottom. And last November, with the Dow lingering around 1,170, his cycle charts showed the index would hit 1,300 by mid-March. On March 1, it climbed to 1,299.36.
``I've never seen a cycle theorist who came up with as many on-the-money calls,'' says Robert James. ``In the last three years he has probably hit more turns than anyone else in the market.'' Mr. James is editor of Timer Digest, a Fort Lauderdale, Fla., newsletter that tracks the performance of around 45 market timing newsletters.
The success of such innovations as mutual fund switching and stock index options has given fresh relevance to market timing. But longevity is a rare trait among timers. Mr. James says his top performers' list of 1982 carries few of the same timers today.
In addition to Eliades, James now lists Robert Nurock (The Astute Investor), Gerald Appel (Systems & Forecasts), Gerald Gordon (The Gordon Market Timer), and the top timer of 1984, Robert Prechter (The Elliott Wave Theorist), as the best market timers. Following their advice, James says, investors could have made 25 to 35 percent on their money last year.
Another breed of cyclical timer doing well of late, says James, is Larry Berg (Astro Letter), who bases his stock market predictions on geomagnetic disturbances -- sunspot activity.
``I know a lot of people say, `Bah humbug,' '' James says. ``And I agree with them about 80 percent of the time. I'm as skeptical -- no, I'm more skeptical than anybody else. But if he comes up with consistently good numbers, I follow him.''
Cyclical thinking is not entirely foreign to the business world. For instance, economists widely assume that the economy operates on about three- or four-year cycles. In Pittsburgh, the Foundation for the Study of Cycles counts some 2,500 dues-paying members. (Membership has been as high as 10,000 -- but that's, well, cyclical, too.) About 75 percent of the members are interested in cycles as they affect stocks, commodities, and business, says foundation analyst Gertrude Shirk.
One can see the vestiges of cyclical thinking in market commentaries lately, too. Statements such as ``This bull market has gone on too long,'' or ``We're due for a bear cycle to begin,'' are not uncommon. But most blend cycle theories with other kinds of analysis. Peter Eliades is one of the few who rely solely on cycles.
But it's not just one cycle. For instance, there are 60-year, 30-year, 20-year, and 212-week rhythms at work concurrently, he explains. The trick is interpreting which of these time cycles takes prominence -- one may be moving up, while another is moving down.
``In the 1980-to-'82 period, we saw the bottoms of some very long time cycles, and they bottomed at the same time.'' This is one reason for his current optimism.
Recently, he has devoted more time to understanding price cycles. He focuses on the major indexes and contends ``eighty to 95 percent of the movements of the markets are cyclic.''
What about stock sell-offs or spurts after one of Henry Kaufman's pronouncements on interest rates or the release of a key economic indicator? ``Bunk,'' he retorts. He allows the market may fluctuate a bit on such news, but he contends it doesn't change the overall trend.
A Harvard undergraduate who later attended Boston University Law School, Mr. Elaides had no interest in stocks until reading a book on cycles in 1968. Applying the theories, he found he could call some market turns.
He prefers not to say why the market is cyclical. ``People laugh at you enough on Wall Street.'' But with some encouragement, he guesses that cycles may ``somehow be tied up in planetary motion.'' He disavows any connection with astrology, however.
``I don't know what `Being,' in capital letters, put it there,'' but he believes there is a ``mathematical order'' to the universe which also shows itself in the stock market.
Last week, the Dow Jones industrial average cycled up, then down, but posted a 16.63-point gain, to close at 1,301.97. Eliades predicts the Dow will drop to an ``important low'' on June 11 before shooting for 1,750. Chart: Interest Rates Interest rates Percent
Prime rate 10.00 Discount rate 7.50 Federal Funds 7.50 3-mo. Treasury bills 7.16 6-mo. Treasury bills 7.38 7-yr. Treasury notes 10.40* 30-yr Treasury bonds 10.84* *Yields; Source: Bank of Boston