Bill Meridian on DOW, GOLD and OIL (Archive)

Published on 24 Aug 2008

Cycles theorist Bill Meridian began on as a fundamental analyst at the Value Line Investment Survey. Then in 1978, he began to design computer programs to perform the number-crunching required to relate stock market movements to cycles. He has worked both the buy and sell sides of Wall Street, most recently spending 14 years in the Middle East as a fund manager and strategist. He currently operates his own business from his home in Europe, traveling to Vienna, London, Tokyo, and Abu Dhabi for his clients. The gold timer of the year 2006, Bill talks on cycles, Gold, Oil and DOW and how to interpret cycles for global cues in an interview with Mukul Pal, from Orpheus Capitals.

1. What sparked your initial interest in CYCLES? And how long have you been studying them?

I began to study cycles in 1972 in NYC. I bought my 1st stock in 1966 and then went to New York University and received my BS and MBA. After reading about panics and crashes, I wondered if there were any methods to forecast the future. Reading the microfiche of old newspapers in the NYU library was very instructive. I joined the Foundation for the Study of Cycles in 1972 and began to study. In NYC, we also had the Society for the Investigation or Recurring Events (SIRE), which had monthly meetings. After this, there was no doubt in my mind that cycles were real and could be utilized profitably.

2. Could you briefly define a cycle and classify the broad cycles for us?

A cycle is a recurring event or rhythm in nature. The cycles that show up most often in nature are 18 years, 19 years, 10 years, 20 years, 36 years, and 60 years.

3. CYCLES work better in Bull or bear market? In other words efficiency of CYCLE signals in trends and counter trends.

Cycles work in both bull and bear markets.

4. Just like Technical analysis are short term CYCLES prone to noise, while long term more consistent in turn signals?

Short-term cycles are more prone to noise. Long-term cycles are less vulnerable to noise, but keep this in mind. If a 30-day cycle is off by 10%, this gives us an orb of 3 days one way or the other. If a 3-year cycle is off by 10%, then it can ‘wander’ plus or minus 3 years from the date of exactitude.
I have often joked about cycles in the following way. How do we know that there is not a 3000-year cycle that wiped the pharaoh out of all of his wheat positions on its last occurrence? We do not know. So be aware that a seemingly isolated event can occur that is actually part of a very long cycle that exceeds recorded history. When the known cycles seem to fail, I think it is simply the fact that the known cycles are being overridden by a stronger and less known cycle.

5. How good are CYCLES as a standalone tool? Are you a purist or do you follow trend following systems along with CYCLE study?

I utilize other methods to confirm cycles. Technical analysis is important, especially in the area of sentiment. When I turned bullish on oil, no one believed me early in this decade. My friends in the Middle East told me that the USA would put tremendous pressure on them if oil exceeded $35 per barrel. I went to the guys who run the International Petroleum Investment Company (IPIC) in Abu Dhabi and asked about the fundamentals. IPIC invests UAE money in energy infrastructure around the world. They told me that world demand was rising well above supply levels. One cannot simply build an oil factory like one can build an auto factory, therefore prices had to rise. The long-term graph of oil from 1865 was bullish. And, I felt that the 18-year cycle was indicating that a period similar to the 1970s was about to begin. In this example, all of the pieces of the puzzle fit.

6. In terms of your cycle work, what time frame do you focus on between minor, intermediate and primary?

Minor is daily; intermediate is weekly, and primary is monthly.

7. Do you use more individual cycles or do you use composite cycles?

I use both for the following reason. In the 1960s, technical analysis developed composite indicators. The problem was that the lagging indicators could mask the effect of one indicator that simply happens to be very accurate at that time. I did a study of long-term cycles of Japanese interest rates from 1880. I then altered the in-sample and the out-of-sample periods. I found that the lengths of the cycles did not change, but the rankings of the cycles did. It reminded me of the standings of football teams. One cycle or team was in first place for one decade, but it was in last place in another decade. The length of the cycles did not shift, but their rankings did. So here is a ripe field for study- is there a periodicity in the rankings of these cycles? To go back to the question, I look at composites, but I am aware that, say, the 18-year cycle may be more valuable than the others cycles within the composite.

8. What’s a good method for spotting commonality among STOCKS and Indices or between assets?

Divide one by the other and create a relative index. Divide oil stocks by oil; divide airline stocks by oil.

9. Are there periods of synchronicity between CYCLES? Should one only use synchronous CYCLES?

I do look for simultaneous highs or lows of the major cycles within markets. If they do confirm, then we should see strong moves either up or down. If they move counter to each other, then we will likely see a trading range. In a trading range, stochastics and Bollinger Bands work better than they do in strong bull or bear markets. Thus, the foreknowledge provided by cycles can be a guide at to which techniques will be valuable in a coming time period.

10. Would you suggest us some technique for spotting CYCLE lows?

Yes, sentiment is valuable. At cycle lows, one should see excessive bearishness. In NYC in the 1970s, there was one company that computed the number of square inches of advertising in each weekly issue of Barrons. The number was very low at bear market bottoms. I used to keep an index of the bullish versus bearish comments in the Heard on the Street column in the Wall Street Journal when I was with Paine Webber in the 1980s. During the entire bull run in the 1980s, that number was a net negative figure most of the time. Thus, the bearishness was a confirmation of the bull market. Paul Montgomery pioneered the analysis of the covers of magazines. He found that, when there was an investment-related story on the cover of Time, the price moved in the opposite direction to that suggested by the cover about 80% of the time with a period of 4 months from the publication date. Paul also found that the effect was greater when the story was on the cover of a non-financial publication. Thus, stories of bear markets and the end of the world in the non-financial media are signs of a low.

11. Do cycle periodicities differ with assets? Or are there larger and prominent cycles that appear on most assets?

The following are the most common: 18 and 10 years.

12. What kind of software does your use for your CYCLES study? Do you use some proxy indicators to STUDY CYCLES like momentum indicators?

I have my software written for my own use. I gave up on the development of commercial software. I also use Tech Signal by Richard Mogey, and Dynamic Trader by Bob Miner. One service that I use is the Notley Information System in Ridgefield, Ct. in the USA.

13. Most top analysts look at a host of assets, like you do. How does looking across global assets help?

It helps in that one market can confirm another, such as hard assets moving inversely to paper assets.

14. A few CYCLISTS claim Elliott is not the ‘THE RULE OF LAW’ but a part of CYCLES. What is your view on this controversy?

I had not thought about it before. I think that Elliott is a separate discipline.

15. International battle cyclicality and world wars are cyclical too? When are we approaching that time frame? Have you done some work on that?

Yes, Wheeler’s War Index peaked in 2008. I have studied military history, so I can analyze the fundamentals. If one has an unbiased source such as, then we can see that Al Qaida was routed in Iraq. The USA has employed technology that has made city warfare winnable. For example, aerial vehicles can enable the military to view enemy movements. This developed into armed aerial vehicles-the Predator and the Reaper. The latter costs 25% of that of an F-16 fighter and requires no pilot. It stays in the air for many hours and can perform maneuvers that would damage the human pilot. It flies above the height of any weapon that can bring it down and cannot even be heard on the ground. In addition, weapons that beam intense sound waves have been in use. It disorients the enemy without injuring him. Reports from Iraq tell us that the enemy simply drops his weapon and runs. My point is that the USA is very far ahead in such technology and has an advantage that will last for years, just like the Ottomans developing artillery and Napoleon developing combined arms. This advantage will last for years, and coincides with the top in the cycle.

16. Where are we now globally on the equity economic cycle according to the CYCLE theory? Any particular time windows you would like to share with us regarding Dow Jones Industrial Average?

We are in a period like that of 1966-1982, in which much debt must be liquidated. The Dow has been in a downtrend, but is likely to bottom in December. But any resultant uptrend will not go to a new high. We are back into the decade of the trader.

17. You have been awarded the TIMER of the year award for GOLD many times. Is Gold your strength? Would you tell us your view on Gold for multi months and multiple year time frames and when should we buy it?

Gold has been easier than stocks. As WD Gann said, there is only one commodity called gold or oil or wheat. Thus, the effect of a cycle on a commodity is easier to detect. A cycle effect on stocks may simply manifest in one sector or a group. Gold usually bottoms in August, and I bought it early. I think it will move up from here and will peak in 2012-2013.

18. What is your view on OIL?

Oil is in a bull market that will likely peak in 2013-2014. The current pullback is a bull market correction.

19. Last year at the Vienna conference you mentioned about the rising interest rate scenario. You also mentioned about the inflationary scenario and possible end of global financial system after 2015. Would you like to share us the updated view on the same?

The view has not changed. I think that the financial structure will change. It did so in the 1930s. We are likely to see big changes in financial market regulation and especially in pension plans. We will see more socialism and less freedom.

20. What should be the survival strategy for this? How should we start preparing?

I took the advice of a PT, which is a Perpetual Traveler: have a passport from a second country, live in another country, and have your business in a third. In this way, one can shift with the trends. I recently developed business in the Mideast-that is where the money is and I know the area. I would not leave money in a bank over the limit of government insurance. Also, own some gold.

21. Though so important, CYCLES RESEARCH companies like yours are few in the world. Why?

Most people cannot combine different techniques. This is due to their character structure. Some people like vanilla and some like chocolate, and most people like fundamental analysis and few like technical analysis. I trained to be a bio energetic therapist for 7 years, and learned to classify people by their structures as defined by Wilhelm Reich. Thus, the choice of investment techniques is a personal and emotional, and not an intellectual issue. I made a presentation before a bond fund run by a group of PhDs. When I mentioned seasonal cycles, one PhD objected. I pointed out to him that the March-April issue of the Financial Analysts Journal (FAJ) featured a study that validates the end-of-the-month upward bias in the US stock market, which is a seasonal phenomenon. He ignored my comment and ran on. I recognized him as an editor of the FAJ, so I repeated my words. No effect. So, I finally asked him if he ever read the FAJ, the magazine which he edits. No response. He could not deal with the feelings that my words were eliciting.

22. Please tell us about your company CYCLES RESEARCH, your current role as a fund manager and why Japan? Can we invest in your fund?

CR simply takes cycles, technicals, and fundamentals and attempts to project future scenarios and to suggest investment strategies that can cope with the scenario. I have institutional clients in several countries. I do not have a fund that is open to the public.

23. Your book Planetary Economic forecasting is very rich in historical facts along with your CYCLE work. We really liked the chapter on Expansions and contractions. Are you working on any new book?

Yes. I am re-writing a book by an old Greenwich Village friend, George Lindsay called The Other History. He took the market technique of cycles counting and applied it to history. I have been using such a technique for 30 years and decided to write about it. In addition, my old teacher, Charles Jayne, was an expert on eclipse analysis. I studied his methods and have a book 75% completed.

24. What is a must read for someone keen to get into CYCLES?

Ed Dewey’s book, Cycles, convinced me that cycles in nature are real and pervasive.

25. We know you are an avid reader. What are you reading these days?

..books about nanotechnology, which is the next scientific revolution. To keep apace of military affairs, I read, which is run by an old NYC friend, Jim Dunnigan. I also seek alternative news sources, such as The New American magazine and Soviet Analyst. Reading about past historical events is important.

Thanks a lot Bill for taking out the time

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