NEW YORK (TheStreet) -- Investors and traders around the world continually search to find or increase their edge in the financial markets to increase profits. The next few months are going to be critical for investors because the number seven is now in play for the stock market.
What does this mean?
In magical lore seven is an important number. While all numbers are ascribed certain properties and energies, seven is a number of power, a lucky number, a number of psychic and mystical powers, of secrecy and the search for truth.
Seven is used 735 times in the Bible and if you total up all words including "sevenfold" and "seventh" the total number of references is 860.
The origin of seven's power lies in the lunar cycle. The moon has four phases lasting about seven days. The Sumerians gave the week seven days. Life cycles on earth also have phases demarcated by seven, and there are seven years to each stage of human growth, seven colors to the rainbow, seven notes in the musical scale, seven petitions in the Lord's Prayer, and seven deadly sins.
More important for investors, the number seven and multiples of seven have a powerful influence on money. The U.S. stock market is trading in the seventh-year window and it should not be taken lightly.
While I could go into a lot more detail about how I use seven in my algorithmic trading strategy to swing trade the S&P 500 index. This article focuses on the investing outlook.
I am fortunate enough that I have been trading since 1997 and have seen how the stock market cycles affect human behavior and businesses, specifically the financial newsletter industry, which I have been involved in since the first day of my trading career.
The stock market appears to be nearing a critical turning point that will change the lives and behaviors of investors for years to come.
The good news is that I have experienced four of these turning points and human behavior shifts in my career before and we are entering the fifth turning point. I feel obligated to share this valuable insight with those of you who read my work. The next major market move could have a dramatic impact on your wealth and retirement years.
Insight on Investor Behavior and Business
Being heavily involved in the financial newsletter industry I have not only seen but survived several of these major cycles that forced many newsletters to go out of business. The cycles at play here are the market trend and the behavior of traders and investors.
The combined forces of these two cycles are what cleanse the newsletter industry of poor quality services. It becomes almost impossible to obtain new clients without word-of-mouth referrals from happy users. If the quality of the newsletter is poor, eventually it lacks enough users to make it feasible to operate. It's the brutal truth. And over the last couple of years, I have seen newsletters and even top trading magazines that have been around for decades close their doors.
The business cycle can easily be explained by observing the chart of the S&P 500 index below. When the stock market has been rising for six or more months, investors start to become confident that they can make money on their own. And they can if they buy and hold during a bull market.
But what happens as the market continues to rise for many years is that more and more investors and traders realize they can make money on their own. The longer the uptrend remains intact the less an investor needs the help of a trading and investing newsletter, making it difficult to get new customers in this highly competitive industry.
Currently investors are behaving almost identically to what I saw during 1999-2001, 2006-2007 and 2014-2015 market tops.
Did you notice anything with those market tops? They are seven years apart.
Let's now take a look at the best times in the business cycle where traders and investors are in desperate need of help and start subscribing to multiple paid financial newsletter services. The strongest times for business took place during 2002-2003, and again in 2008-2010. This is when investors not only lost most of their wealth, but also their faith in how they invest, who they invest with, and the stock market as a whole.
Did you notice anything else? They are also seven years apart.
Investors' 7-Year Financial Outlook
Those of you who follow me know that I do not pick market tops or bottoms. Rather I focus on identifying trends and cycles in the market and only trade and invest with the active confirmed trend.
You also know that trying to pick market tops and bottoms is a sucker's game and a sure fire way to lose a lot of money and build a serious complex that the market is manipulated, not tradable, and that it may be time for you to give up completely on trading.
Well, I am here to say that the market is tradable, and can generate traders and investors a boatload of money once you understand how and why it moves. Most important, you need to understand money/position management and be patient for consistent long-term gains.
Take a look at the chart below for a clear visual of seven-year cycle highs and lows at play.
While I do not invest based on this major seven-year cycle, I do actively trade a smaller market cycle that provides roughly 35 to 65 trades a year. This strategy allows me to profit during these major bull markets and also during the multiyear bear markets, when the majority of investors are losing boatloads of their hard-earned money.
The reason I do not invest in the seven-year cycle is because the market can still have 30+% price swings within bull and bear markets and that type of volatility is beyond what I am comfortable with. Also, I can actively invest with my automated trading system, so I don't need to lift a finger or watch the stock market each day, week or month.
This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.