This weekend we'll turn our focus to a discussion of cycles analysis of the markets. It's a broad topic so this will just be an introductory overview, then different types of cycles methods can be addressed in followup posts this weekend. Starting with the "ABC's" is funny because these actually refer to three types that we've already referred to here - Armstrong (Economic Confidence Model), Bradley (Bradley model), and ChartsEdge! "C" can also refer to "Cycles" generally, as there are many who refer to the 4-year cycle as well as shorter and longer-term cycles intervals. Below is some general information on cycles, after a quick list of many methods (there can be others I'm not aware of yet or just didn't remember to include right now).
Armstrong - well, actually this should be under "E" for Economic Confidence Model
Astrologically-based cycles
Bradley model
Box theory
ChartsEdge cycles method
ChartsEdge daily maps method
Cycles in general - 4-year cycle, 72- and 90-year cycles, trading cycles, etc.
"Cyclesman" or Cycles News & Views - Tim Wood's analyses
Decennial cycle
Economic Confidence Model (Martin A. Armstrong)
Elliott Wave*
Election cycle (U.S.) - likely same as 4-year cycle
Five-Elements or Yin-Yang (Chinese calendar)
Fibonacci patterns*
Four-year (4-year) cycle
Gann fans
Geomagnetic storms (probably a function of another cycle)
Kondratieff (or spelled Kondratiev)
Long waves - 54/60 year, 72-year, 90-year and similar long cycles
Solunar model
Spiral Calendar
Sunspots (probably also a function of another cycle)
T Theory
We've already seen that the April 17-20 time window from Armstrong's Economic Confidence Model led the VIX into new lows, that it's still testing, as well as equities and other (real estate?) markets into relative highs that they are also testing or perhaps reacting from. Time will tell, but readers might want to review more information using that label (in the labels list at right) to find posts about this model and what it indicates as likely for the time period into the year 2011.
Elliott Wave and Fibonacci patterns may not always be cycles methods strictly speaking. But what Elliott Wave brought to the table that I think was missing from Dow Theory, was the recognition that certain wave patterns tend to build in ways that point to likely time and price projections for subsequent highs and lows. Fibonacci price patterns also are based on the discovery that, once a certain price pattern has occurred with identifiable swing high and swing low points, it's possible to predict the likely subsequent price reaction levels, sometimes with an understanding of the probable time window of the initial and any subsequent targets.
Fibonacci time calculations, however, are more clearly a method of cycles timing. Typically they'll be done to identify one specific pattern or setup. But it wouldn't surprise me at all if it turns out that Fibonacci calculations can help explain patterns when certain smaller-time frame cycles merge with longer-wave cycles to produce significantly higher or lower cycles crests and troughs.
Many if not most cycles are measured from one trough (bottom or low) to the next. For some reason, the lows often display more time periodicity than the highs. In many cycles methods, therefore, a cycle can be called a failed or bear cycle if the crest (high) that comes after a trough, is lower then the crest produced by the prior cycle trough. It implies that the next trough has a higher probability of producing a lower low. But this is also influenced by whether or not a particular cycle low bottoms a short-term cycle, or a cluster of short-term and intermediate-term cycles, or even a long-term or long-wave cycle.
One thing many people don't realize is that the use of moving averages, which many are aware of, is related to cycles and can be used in certain methods of cycles analysis. While I don't use this rigorously myself, I'm aware that some cycles analysts use moving averages as quick way to view whether or not a market price is likely to remain above or fall below the trough of the prior cycle low.
The Bradley model forecasts significant "turning points" approaching June 3, June 26, and July 14-15 (France's Bastille Day holiday!). The Bradley chart shows these as a significant high or crest for the year, followed by downward movement until November 9, 2009. Let me be candid - I personally have never been able to use the Bradley model profitably. Some investors/traders seem to love it, but I cannot manage to synch up the high and low turning points to actual market levels. Sometimes the predicted trend seems to work but I have not determined whether it does so with any statistical significance (or predictability) or is it just coincidence. Still - it's out there and many seem to use it. You can see it in my most recent (May 3) post about it here, Bradley model enthusiasts will be looking for significant equities market levels this June and July.
The Armstrong (Economic Confidence Model) and Bradley models, as well as Kondratieff waves, I've mentioned before here, and you can look up those posts (use labels list at right). I've also posted some information on the ChartsEdge cycles methods, and Fibonacci patterns, not just here but also at my No Bull - No Bear - No Bias (tm) (trader education) blogspot.
Andre Gratian incorporates cycles analysis with his Market Turning Points work. You can see that when he refers to shorter and longer-term cycles in his daily subscription service, as well as his free weekly updates posted here each weekend.
Tim Wood with his Cycles News & Views subscription service also analyzes cycles of various lengths, such as shorter-term trading cycles, the 4-year cycle, and longer-wave cycles. He incorporates this with Kondratiff waves which have an average 54 or 60-year cycle length, as well as Dow Theory and technical indicators.
The Decennial cycle is, as its name implies, a method that finds the probability on a decade-by-decade basis that each year within the 10-year period will have a positive or negative bias. If you have a copy of Frost & Prechter's book, Elliott Wave Principle, then you can locate a brief discussion and some charts showing the Decennial cycle. It was actually based on reading that and comparing to EWI's then-predictions in early 2007 about the all-time top, that I sent messages to EWI asking whether it wasn't more likely for the markets to top out in November 2007, including with a projection to a nice Fibonacci level around 14,400 for the Dow Jones Industrial Average. Well, I was off by a few weeks and a few hundred Dow points, but obviously closer than what EWI was saying both in spring and summer 2007! But that was before I learned to wean off that service and study up for myself. I've learned to respect the Decennial model, but also that there's plenty else to know about market behavior. Don't know that I'll ever master all there is to know, but I'll always enjoy gaining more knowledge and learning to apply it.
Gann angles share something in common: the concept is known rather widely but really being able to apply it is quite another thing. Often the price channels and trendlines that I and others use, and Andre Gratian specializes in, use slopes of Gann angles. For someone who specializes in Gann angles and actually using them in market analysis, Andy Askey's work at PTV-Investing Blog is worth checking out. I'm not certain that Gann analysis truly a "cycles" method. But the Gann angles do seem to give clues about where cycles troughs may "land," and I have a sense that the method can have a timing element.
The "Solunar" method that Chris Carolan is using is either related to the Spiral Calendar, or perhaps it's just that Chris also utilizes the Spiral Calendar. Not my area of expertise so still learning about these. I've seen prior Spiral Calendar work by another analyst in the past and it always was very interesting that he was able to use it with a certain degree of probability for market projections. As for the "Solunar" method itself, I'll be curious to learn whether it somehow meshes with things like sunspots (which, all kidding aside, EWI has presented a very interesting correlation chart documenting - but since it's EWI's copyright and I don't think they'll grant permission for me to post it, I'll just say it's out there). I feel that I've seen similar cycles work before but cannot think where or when. You can find more information of course at the Carolan website, and you can see what Chris Carolan's "Dow Solunar" cycles forecast predicts for upcoming weeks, through the end of July, at my May 12 post here: Comparing the Elliott Wave cases for and against another new low before higher highs in equities markets (that title didn't reference it but it can be found with the "Cycles-Other" label in the labels list).
Astrologically-based methods are certainly interesting, and they can be similar to Chinese Five-Element (Yin-Yang) calendar-based methods also. We post Raymond Merriman's weekly updates here, and include his site in the "other sites of interest" listed at the right side of the page here. Initially this was because my late, best trading mentor considered Merriman's work helpful; and, I've found it helpful also. Raymond Merriman also incorporates cycles analysis in the market forecasting messages that he shares with those who buy his publications and subscribe to his services. It's an interesting mix, including for the reason that the market cycles he incorporates seem to be largely the same cycles that Tim Wood analyzes with his Cycles News & Views service
This weekend won't be long enough to provide deep reviews of all of these methods, but will allow some review of many of them. Readers should understand that different cycles analysts are deriving different conclusions. For that matter, sometimes analysts using the same methods end up with different ideas about what's to come! Well, that's true about most kinds of methods actually; although statistical and scientific methods can be brought to bear in some cases, to help derive more reliable results or higher-probability predictions.
Personally, I agree with the general idea that's also put forward by many analysts I trust, that the market still has more to clear out and will ultimately bottom into significant lows in the months/years ahead. After that, we can see a big advance, so we'll need to have the mental flexibility and the agility to adjust when it happens. But not until the market prices - and time! - are ready.
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