Stocks & Commodities V. 32:9 (10–17): Looking At Cycles by Koos van der Merwe

Stocks & Commodities V. 32:9 (10–17): Looking At Cycles by Koos van der Merwe

Let The Good Times Roll

We live in a world of cycles and many believe there is a correlation between cyclical movements and our emotional ups and downs. Here’s a look at some of the different types of cycles as they relate to the financial markets.

The earth orbits the sun in 365.25 days; the moon circles the earth in 29.53059 days; the high and low tides of the ocean follow a cycle triggered by the gravity of the sun and the moon — cycles are everywhere. Many who follow astrology believe that the moon’s cycle can affect the way we feel. For example, when the moon is full, stress becomes a major factor. A new moon, on the other hand, brings with it the sense of calmness. All these emotions are reflected in the stock market as you buy and sell stocks.

THE BASIC CYCLE

When you first learn about cycles in technical analysis, it’s likely that you’ll learn about the repetition of the first low to another low, as shown in the chart in Figure 1. The chart shows how accurate the cycles are to the lows, with the occasional one becoming a high, as shown by the vertical lines labeled 3, 5, 6, and 7. Yes, I did say occasional, because if you introduce a margin of error of four days, the vertical lines will pick up the anticipated cycle low.