The Four Phases of a Stock Market Cycle – Where We Are Today and What to Do Next

By TradeSmith Editorial Staff

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After a first-half surge that pushed some U.S. stocks to triple-digit gains, the August rout has been downright painful.

Some members of the “Magnificent Seven” — the stocks that led the march since the start of the year — have incurred a vicious kick to the gut. The venerated Tesla Inc. (TSLA) is down 13.58% over the last month.

And for a broader picture, the Nasdaq, Dow Jones Industrial Average, and the S&P 500 are all down:

Like I said… it’s painful.

But painful isn’t bad.

In fact, this sell-off is downright healthy.

There are ebbs and flows to every market, and this is all part of a normal “cycle” that stocks follow, Jason Bodner — the inventor of the Quantum Edge system — told me during our latest talk.

“Keith, August is traditionally a lousy month for stocks.”

But that whipsawing opens new doors and creates new opportunities for investors who understand the market ebbs and flows.

Luckily, Jason has created a type of “cheat sheet” to show how this all works.

And better yet, he’ll tell us which phase we’re in… and what to do next.

The Four Phases of Investing

In addition to aligning closely with historical patterns, Jason says that the recent action fits the typical cycle of “Big Money” ebbs and flows. The richest and smartest investors and funds on Wall Street typically follow a pattern within four phases.

Each one has its own “personality.” And knowing each one and how to invest can help you win.

The four phases are:

  • Phase 1: Big buying, little selling. The rising tide lifts all boats.
  • Phase 2: Buying slows, selling starts. The peak is nearby.
  • Phase 3: Buying all but stops, selling grows. The pullback is here.
  • Phase 4: No buying, lots of selling. The end is in sight.


Being ahead of the game is key for those cycles.

You wouldn’t want to be buying heavy near a peak, just like you wouldn’t want to be selling right before money comes flooding back into the market and sending stock prices higher.

The data tells Jason that we are likely in Phase 3.

It also lines up perfect with the moves he’s seeing from Big Money.


That means we have a little bit further to go before hitting Phase 4 and selling dries up more… which eventually… leads back to Phase 1 — huge buying.

Jason says he expects the start of a “Big Lift” in October, where money will come flooding back into the market.

That’s why he’s making sure the members of Quantum Edge Pro are prepared, adjusting risk points and selling some winners now to have extra investing “firepower” to scoop up other stocks.

“Keith, most people don’t look at things this way, but the flip side of volatility is being able to buy shares of great companies at great prices.”

The Bottom Line: I know it can be unnerving to watch the seesawing of stock prices in your portfolio. And when times are tough, it’s easy to feel like they will always be tough. But if anything, this is all natural… and expected. With the Big Lift expected in October, the volatile price swings we see today could be a distant memory, so you want to make sure you’re not left behind.

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