Sunday, July 29, 2012

Cycle Commonality

Our last post pointed out several reasons for a technical analyst to be bullish. The NYSE A/D line has not broken its long up trend. The railroads such as CNR and UNP are both above rising 10 & 30 Week MAs and close to 52-week highs (CP now at a new 52-wk high) and now the broader stock indices brushing off Apples earnings disappointment along with ignoring torpedoes like Faceplant – sorry I mean Facebook and ZYNGA. Also our TSX the materials and the gold sectors have completed a perfect Fibonacci 61.8 percent corrective retracement the great 2009 to 2011 advance.

Cycle studies also have a bullish component. Our chart is the intermediate cycle overly of five diverse major stock sectors, the S&P500, The iShares Europe350, the iShares Latin America 40 and the iShares MSCI Emerging Markets ETFs. There are five cycle principles, Summation, Commonality, Variation, Nominality and Proportionality but in this example let us deal with cyclic Commonality and cyclic Variation. Cyclic Commonality occurs when the peaks and troughs of cyclic fluctuations of different markets are time synchronized and cyclic Variation occurs when the cycle magnitude and duration will shift due to fundamental differences in different markets

The strategy is to observe when periods of commonality or variation are present and to plan for the effect on the broader stock indices. Cyclic peaks tend to identify important peaks and cyclic troughs tend to identify important bottoms and cyclic Variation tends to introduce trendless markets. Enjoy!

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