Nature of Cycles
Everything in nature moves in cycles. Our solar system moves in a cycle around the center of the Milky Way galaxy. The planets move in precise and predictable cycles around the sun. The cycle of the tilt of the earth causes the cycle of the seasons. The rotation of the earth produces the cycle of night and day. The full moon occurs with predictable regularity as do the rise and fall of the tides. Each year geese migrate, animals hibernate, and salmon swim upstream to spawn, to mention just a few of the Seasonal Cycles with which we are familiar. Other cycles are such an intimate part of our daily life that it may be hard to think of them as cycles. The cycle of sleep is experienced by most of us every 16 hours or so. Both men and women experience a monthly cycle of emotional highs and lows. The cycle of a heartbeat is as regular as clockwork until disturbed by exercise or an emotional experience such as a margin call. These are all cycles we can understand and accept because we have an understanding of the underlying cause of these cycles.
QUOTE
The same Nature which delights in periodical repetition in the skies is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint. — Mark Twain
Knowing that cycles affect market prices is of little more than a passing interest for a market analyst and trader unless the cycles can be used to identify tops and bottoms of price movement, and to also give indications of future price activity in both time and price. Herein lays the challenge presented to the cycle analyst.
It is fundamentals that move the markets, but you have probably noticed that the fundamental picture is the most bullish at tops and the most bearish at bottoms. Cycle analysis of the futures markets assumes that at any point in time, the then current fundamental information available is relative only to the current price structure, and that fundamental events will occur to move prices in the direction of the cycle. Such an event may be a government report that greatly changes the supply or demand picture; money supply figures; utterances of Federal Reserve officials; foreign purchases; crop failure or freeze in any part of the world; war or the threat of war; unexpected political action such as embargoes, tariffs, or price controls which can change either the supply or demand picture. These and many other unforeseen factors can alter the prospects for the future. Cycle analysis does not pretend to forecast what will happen in the future, just that some event will occur to move prices in the direction of the cycle.
==Unfortunately for the market analyst and trader, cycles can contract, expand, and even skip a beat now and then.== The uses of Oscillator/Cycle Combinations are powerful tools that often allow for early identification of cycle highs and lows. Once a high/low has been identified, the component parts of the cycle are used to set up time expectations for the next high or low. Cycle analysis is an art that can be readily learned through the application of its principles. Despite its limitations, cyclical analysis is the one approach that can provide relatively accurate time and price projections weeks, months, and even years into the future.