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FAQ Cycles Analysis
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Index 17 December 2018

DJIA: 131.3 *
Silver: 44.67

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The basics on Market Cycles & Patterns

 

FAQ

 

  • What is cycles analysis?
    Answer: "Cycles analysis views the historical correlation of patterns shown at market charts. Based on research of market behaviour of many centuries it reveals that financial markets tend to move in repeating cycles and patterns. With this understanding one can assess where a market is in its longer-term pattern and from that, it gives insight and forecast of the most likely future scenario.

  • What is the definition of a cycle?
    Answer: "A cycle is a measurable phenomenon that occurs consistently (80% minimum) in frequent time intervals. In financial markets cycles are measured from low to low.”

  • Are cycles’ lengths equal?
    Answer: "A cycle’s length can diverge 1/6 of the median length and still be recognised as a cycle in the 80% norm. The completion of an old cycle corresponds to the dawning of a new cycle.”

    According to the American financial astrologer Raymond A. Merriman there is evidence that shows that financial markets move in cycles and patterns consistently. These cycles patterns, existing from the very beginning of the financial markets, have shown that existing price patterns tend to repeat itself time and time again. In The Ultimate Book on Stock Market Timing series he wrote he in Volume 1: "Cycles and Patterns in the Indexes" defines these cycles and patterns, troughs and crests (tops and bottoms) in the British/American and Japanese markets, the former since 1695.”
     

  • Can you show me some examples of cycles?

    Answer: “These are a few examples, of a number of cycles:

    ►Major cycles tend to last 6 (5-7) weeks on average;

    ►Primary cycles (also referred to as "Quarterly Cycle" in Market Timing Digest) tends to last 16 weeks on average in the US shares markets, with a demonstrated range of 13-21 weeks;

    ►A half-primary cycle splits the next larger primary cycle in two (if it occurs):

    ►The Dutch AEX Index tends to vary in qurterly cycles and +/- half year cycles

    ►Many markets are showing a 50-weeks cycles pattern.
     

 

  • What is the definition of a cycle?
    Answer: " A cycle is a measurable phenomenon that occurs consistently at regular intervals of time. In markets, cycles are measured from trough (low) to trough, unless specified otherwise."

  • What is a "phase"?
    Answer: " A phase: These are sub-cycles within each cycle. Each cycle is comprised of two or three sub-cycles, or phases that are approximately 1/2 or 1/3 of the greater cycle’s length."

     

  • What are cycle patterns?
    Answer: "There are three common cycle patterns 1) The classical “three-phase” pattern, in which there are three sub-cycles (or phases) of approximately 1/3 the greater cycle length; 2) the classical “two-phase” pattern consisting of two sub-cycles (or phases) of approximately ½ the greater cycle length; and 3) a “combination” pattern, which has sub-cycles at the 1/2 and 1/3 intervals of the greater cycle, thus making it appear that there are 4 sub-cycles within the greater cycle."

     

  • What do you mean with a Bull Market?
    Answer: "A market is being called a bull amrket when we see consecutively higher crests and higher troughs of the same cycle type; "right translation" patterns of primary cycles. “Right Translation” means the crest occurs in the second half of the cycle, past the midway point of the two troughs that define the cycle."

     

  • When do you consider a market to be a Bear Market?
    Answer: "Bear Market: Consecutively lower troughs and lower crests of the same cycle type; "left translation” patterns of primary cycles. “Left Translation” means the crest occurs in the first half of the cycle."

     

  • What is a trend?
    Answer: "A trend: Bull or bear (as above). Trend depends upon the cycle you are studying. The trend is usually determined by the time frame or cycle that is the next longest after the one you are studying. For example, the trend of the primary cycle may depend upon the phasing of the 50-week cycle; the trend of the 50-week cycle may depend upon the phasing of the 4-year cycle. The first phase is always bullish, the last is usually bearish."

     

  • What does 'support' mean?
    Answer: "An area below the current market price where we expect prices to hold on declines; a "floor" for prices."

     

  • What does 'resistance' mean?
    Answer: "Resistance: An area above the current market price where we expect prices to hold on rallies; a "ceiling" for prices."

     

  • When would a market be 'in congestion'?
    Answer: "That is the price area between support and resistance. When a market trades below a resistance zone but above a support zone for several days, weeks, or months, it is said to be in “congestion.” At these times, traders will look to buy as prices fall nearby to support, and then to sell when they rally nearby to resistance."

     

  • What's Bullish Intermarket Divergence?
    Answer: "Bullish Intermarket Divergence occurs when a market makes a new cycle low, but is not confirmed by a new cycle low in another closely related market. Examples would be Dow Jones Industrials and S&P futures, or Gold and Silver, or Corn and Soybeans, or Swiss Franc and Euro. If one makes a new low and the other does not, during a cyclic time band for a low, it is oftentimes a favorable "buy" signal.."

     

  • What's Bearish Intermarket Divergence?
    Answer: "Occurs when a market makes a new cycle high, but is not confirmed by a new cycle high in another closely related market. If one makes a new high and the other does not during a cyclic time band for a high, it is oftentimes a good “sell” signal. "

     

  • What's a Double top?
    Answer: "A chart pattern where the market makes a crest (high in price), then declines, and then a few days (or weeks or months) later it returns to that same price area to form a second peak, it is known as a “double top.” If the second top holds, it is usually a bearish sign that the market will fall for awhile."

     

  • What is a double bottom?
    Answer: "A chart pattern where the market makes a trough (low in price), then rallies, and then a few days (or weeks or months) later, it returns to that same price area to form a second trough, known as a “double bottom.” If the second trough holds, it is usually a bullish sign that the market will rise for awhile."

     

  • What are Price Objectives?
    Answer: "There are two types referred to in this book. One is “corrective retracements” (corrective declines, or rallies), which are 50% corrections of price swings that are against the underlying trend (bullish or bearish). The other is known as Mid-Cycle Pause (MCP) price objectives, which refers to higher prices above the market (in the case of bull markets) or lower prices below the market (in bear markets). There are other more advanced techniques for price forecasting also used in this book."

     

  • Who / what is “Elliot Wave”?
    Answer: "Elliot Wave is a system of analyzing a chart structure in terms of patterns, known as “waves.” Usually markets move up or down in 5 waves in the direction of a trend, or 3 waves when making a contra-trend move. The method of chart analysis is named after R.N. Elliot, a highly respected market technician of the 1930’s and 40’s, and further enhanced through the writings of Robert Prechter of Gainesville, Georgia."

     

  • How can I find more basiscinformation about Market Cycles?
    Answer: "We’d recommend reading the starter book Merriman on market cycles, the basics, it is available in our web shop."