Cyclical Price Pattern

A cyclical price pattern has a beginning low price (bottom), a prolonged upside of rising prices, a range of high prices culminating with a peak price, a prolonged downside of declining prices, and a bottom. Cyclical price patterns can be found for stocks, bonds, commodities of all sorts, real estate and land. See Analysis of Semiconductor Equipment Makers Stocks for a detailed analysis of semiconductor equipment stock price cycles.

Cycles can be completed in months or years. Cyclical price patterns for a given stock often repeat as illustrated in the next chart. Between 1992 and 2004 Kulicke & Soffa (KLIC), a semiconductor equipment maker, has completed five cycles. Read Kulicke & Soffa Fourth Cycle: 1998 - 2002 for more information about the fourth cycle and fifth cycles.

A cyclical price pattern presents a very profitable investing opportunity for investors, who can consistently identify bottoms and tops - thus buying low and selling high. You can use the Price Direction Indicator (PDI) to help identify tops and bottoms of cycles.

Because of the widely fluctuating prices within and between cycles, cyclical investments are not ideal for the long-term buy-and-hold investor. But you can make lots of money with cyclical stocks if you buy them on the upside.

Two other semiconductor equipment stocks, Asyst Technologies (AYST) and Credence Systems Corporation (CMOS) have very similar cyclical price patterns.

Asyst Technologies (ASYT)

For cycle 3 you can see the huge spike during the 2000 bubble and the subsequent sharp decline. Buying that downside would have been a disaster.

Credence Systems (CMOS)

Cycle 3 is the 2000 bubble cycle.