Everything is cyclical. That should be the mantra of every stock trader. Everything is cyclical.
Whenever I talk about Cyclical Analysis, I talk about many things: the decade theme, the Stock Market Cycle, the Economic Cycle, the Dollar/Bond Cycle, the individual sector cycles, the individual industry cycles, the individual stock cycles . . .
What I’m really talking about is money. The movement of money. Because money is cyclical. It is always moving from place to another and that movement drives all of those different cycles.
That is why, when you want to understand a stock’s price action, when you want to predict what a stock will do in the future, you can’t just focus on one cycle, like the decade theme. If you want an edge over 99% of other investors, your Cyclical Analysis should encompass several cycles.
Let’s take a single stock, Qualcomm (QCOM), and look at how it was affected by the movement of money and how money affected several different cycles.
Start with the decade theme. You should always start with the decade theme. [See my article “How You Can Use the Investment Power of Cyclical Analysis to Grow Rich Quickly” to learn more about the decade theme.]
Back in the 1990s, we had a Capital Goods and Technology-theme decade.The market sends money to where money is needed and in the 1990s, Technology was a sector that needed a lot of money as first generation companies launched one innovation after another and as the Y2K threat loomed closer and closer. Soon there was an excess of money in the market and it went everywhere, especially into the best companies—those with the strongest Fundamentals—and those companies went whacko. That’s what happened to Qualcomm.
In the 1990s, Qualcomm was a pioneering wireless technology and services provider at a time when the internet was just starting to take hold and cell phones were beginning to take off. It was the right company at the right time in the right decade theme.
Your low-risk entry would have been at around $7 in March 1999. If you only bought Qualcomm stocks with your $5,000, you could have purchased 714 shares. If you bought Qualcomm on margin, however, you would have had 1,428 shares. A wise investor would have then sold those shares at around $80 in December 1999, before the stock topped, because when a stock tops the only place it can go is down, carrying your profits with it. By selling at $80, however, your profit would have been around $114,240. Subtract $10,000, your initial investment, and the margin fees and you would have been left with around $100,000.
If, however, you had used your $5,000 to purchase Options instead of stocks, your profit would not have been $100,000. It would have been around $500,000.
Want less risk and more profits? If you had invested only $2,000 in Qualcomm Options and actively managed your investment, rolling over the stock and maximizing the use of your capital and growing profits, you could have made over $1 million.
That was Qualcomm’s first brush with the power of cycles.
Y2K came and went. The Capital Goods and Technology-theme decade ended. The 2000s were a Commodity-theme decade, which saw a global boom in commodity demand and prices. That was bad news for technology companies like Qualcomm. It was worse news for many highly-funded companies that had no profits to show for all of that excess investment from the 1990s. Technology companies began to fail spectacularly. The dot.com bubble burst. That, along with the change in decade theme, sent Qualcomm’s share price plummeting.
But not for long. Other cycles came into play.
First, Qualcomm is a cyclical stock. It shifts from bottom to growth, to top, to decline, to bottom again, just like the Stock Market Cycle. Over three years (2000 – 2003), Qualcomm cycled from its top to its bottom. The only place to go next was up.
Second, the Telecommunications Sector was beginning to skyrocket—cell phones were selling like hotcakes—and Qualcomm provides the technologies and services that sector needs. The Telecommunications Sector’s cycle pulled Qualcomm out of its bottom and sent it into growth again.
Third, in January 2003, the Stock Market Cycle began to move out of its bottom, climbing to a new high in July 2007. That bullish stage of the Stock Market Cycle also helped to lift Qualcomm back into growth.
Fourth, the Stock Market recovery that began in March 2009 and went on to take the market to new heights helped Qualcomm’s stock shiftout of five years of somewhat volatile accumulation into an up-trend in September 2010.
Fifth, while the Technology Sector no longer enjoys explosive growth, it is still generating moderate growth and that is helping to fuel Qualcomm’s up-trend.
[FRANK/ADD: Are there any other cycles affecting Qualcomm today and tomorrow?]
Investors who paid attention to those different cycles and bought back into Qualcomm in the Fall of 2010 have reaped very nice profits and should continue to earn steady profits from this stock for the foreseeable future.
That could have been you.
Cyclical Analysis is one of the things that differentiates Adimir from every other investment class, website, and investment program and Cyclical Analysisis much more complex than one article can cover. Want to learn more and give yourself a powerful tool to build your wealth?
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