There are many different cycles affecting the financial markets. The only ones of real value for forecasting purposes are the dominant cycles. Dominant cycles are those that consistently affect prices and that can be clearly identi‑fied. Most futures markets have at least five dominant cycles. In an earlier chapter on the use of long term charts, it was stressed that all technical analysis should begin with the long term picture, gradually working toward the shorter term. That principle holds There are many different cycles affecting the financial markets. The only ones of real value for forecasting purposes are the dominant cycles. Dominant cycles are those that consistently affect prices and that can be clearly identi‑fied. Most futures markets have at least five dominant cycles. In an earlier chapter on the use of long term charts, it was stressed that all technical analysis should begin with the long term picture, gradually working toward the shorter term. That principle holds the analysis with a study of long term dominant cycles, which can span several years; then work toward the intermediate, which can be several weeks to several months; finally, the very short term cycles, from several hours to several days, can be used for timing of entry and exit points and to help confirm the turning points of the longer cycles.
Classification of Cycles
The general categories are: long term cycles (2 or more years in length), the seasonal cycle (1 year), the primary or intermediate cycle (9 to 26 weeks), and the trading cycle (4 weeks). The trading cycle breaks down into two shorter alpha and beta cycles, which aver­age 2 weeks each. (The labels Primary, Trading, Alpha, and Beta are used by Walt Bressert to describe the various cycle lengths.) (See Figure 14.13.)
The Kondratieff Wave
There are even longer range cycles at work. Perhaps the best known is the approximate 54 year Kondratieff cycle. This contro­versial long cycle of economic activity, first discovered by a Russian economist in the 1920s by the name of Nikolai D. Kondratieff, appears to exert a major influence on virtually all stock and commodity prices. In particular, a 54 year cycle has been identified in interest rates, copper, cotton, wheat, stocks, and wholesale commodity prices. Kondratieff tracked his "long wave" from 1789 using such factors as commodity prices, pig iron production, and wages of agricultural workers in England. (See Figure 14.14.) The Kondratieff cycle has become a popular subject of discussion in recent years, primarily owing to the fact that its last top occurred in the 1920s, and its next top is long overdue. Kondratieff himself paid a heavy price for his cyclic view of capi­talistic economies. He is believed to have died in a Siberian labor camp. For more information, see The Long Wave Cycle (Kondratieff), translated by Guy Daniels. (Two other books on the subject are The K Wave by David Knox Barker and The Great Cycle by Dick Stoken.)