Market Cycle

Cycle basics

Markets move in cycles. Conditions expand, cool, and reset. Howard Marks emphasises that understanding this rhythm is critical to investment results because it frames expectations and behavior. The Market Cycle chart translates that idea into a working visual: a balanced center, positive and negative phases, and guides that frame what typically counts as extreme.

The goal is not to forecast each turn, but to recognise where we are and act accordingly.

Directional progression and extremes

The chart shows progression through time. As bars move from negative to positive or deepen in either direction, it becomes easier to see when conditions are improving or deteriorating. The top and bottom dotted lines act as guides for what typically counts as stretched or compressed. When bars approach the top guide, conditions are often mature and a sell or short can be considered. When bars approach the bottom guide, conditions are often washed out and a buy can be considered.

Entries, exits, and bargains

Looking for quality businesses near the bottom of their market cycle is a practical way to spot potential bargains. The Market Cycle chart highlights those zones visually. Sharemaestro adds an additional layer with its valuations, which often provide a useful reference alongside the cycle view when deciding whether to act.

The crossover pattern

The Market Cycle crossover happens when the bars transition from red to green. When this occurs from a deeply negative level, the subsequent move can be considerable. These crossovers are worth monitoring closely because they often mark the start of a new positive phase after reset.

Risk framework and Smart Money integration

The Market Cycle is one element of the broader Sharemaestro framework, but it is important enough to influence other charts. The system is deliberately risk averse. Smart Money Buy signals appear on the Smart Money chart only when the Market Cycle is negative (red). This restriction ensures early campaign recognition aligns with caution and value discipline.

Chart elements

Bars - direction and intensity

Green bars indicate positive cycle conditions. Red bars indicate negative cycle conditions. The height reflects distance from balance, making intensity easy to see at a glance.

Baseline - balance

The dashed center line is the point of balance. It turns direction into meaning and keeps the reading anchored.

Top and bottom guides - typical extremes

Dotted guides frame what typically counts as stretched on the upside or washed out on the downside. They help define where entry or exit logic can be considered in context.

The synergy effect

The Market Cycle does not stand alone. Combined with the Smart Money chart and Sharemaestro valuations, it forms a practical toolkit. Cycle position frames the environment, Smart Money tracks accumulation and momentum, and valuations ground decisions in business quality. When these elements align, noise falls and conviction rises.

Putting it into practice

• Map direction - note whether the bars are red or green and how they are progressing.
• Watch extremes - treat approaches to the top or bottom guides as areas to plan entries or exits.
• Track crossovers - monitor red to green transitions, especially from deep lows.
• Integrate signals - Smart Money Buy appears only in red cycle conditions to maintain risk discipline.
• Consult valuations - use Sharemaestro valuations to filter for quality when opportunity appears.

Legend

• Baseline - dashed center line.
• Top - dotted upper guide for typical upside extremes.
• Bottom - dotted lower guide for typical downside extremes.
• Market Up ++ - green bars.
• Market Down -- - red bars.

This narrative is for information only and does not constitute investment advice. Markets involve risk and capital is at risk.