There is a lot of speculation around regarding future market movements. The most important question now is what kind of a paradigm the stock market will follow within the next several months. There is an opinion that the market is changing its paradigm. Behind this very obscure statement lies a very precise technique that will be explained in this article.
The formal analysis says (see in the end of this article) that two most important cycles can be revealed inside the historical data for Dow Jones Industrial index. One of them is Juglar 9-11 years cycle and the other is Kitchen cycle. This is exactly what the Classical theory in economics states.( I do not consider here Kondratief cycle as it is too long.) To conduct this analysis, I took long term monthly data for DJI: since 1789-1885 "stock index" was used and since 1885 Dow Jones Industrial index's data were analyzed.
On the chart below you can see five different projection lines calculated for the most powerful economical cycle - Juglar cycle:
What do these projection lines tell us? All these projection lines are based on the same cycle, the only parameter that makes a difference among them is the amount of analyzed years that are used to adjust this cycle.
Red line represents Juglar cycle based on the latest 10 years of DJI history, i.e. this curve shows how Juglar cycle works for the last 10 years, since the year 2000.
Blue line shows Juglar cycle adjusted to all available 200 years of history of the American stock market.
In other words, the red projection line shows the recent tendency in the stock market behavior, the pattern that was formed within the last ten years. Blue projection line tries to reveal persistent tendencies.
What projection line is more important, red or blue? I don't know.
I think we need to watch how DJI will move within the next six months. If the steady growth will continue, i.e. Dow will follow a red line - the newest tendencies in stock market behavior will prevail. If the stock market will start declining till June-December 2011, the old patterns will play the main role here.
We will see what happens in the reality.
This bunch of projection lines is called committee.
Here is the committee calculated for a superposition of two cycles - 40 months' Kitchen cycle and 10 years Juglar cycles:
Below is the explanation how I have received these lines. It is done with Timing Solution software, so any of Timing Solution users can repeat what I have done.
Instruction for Timing Solution users:
To reveal the most important cycles, run Spectrum module and set there these parameters:
Two highest peaks here correspond to the strongest cycles. Click the mouse around these peaks to pick them up:
To calculate a projection line based on these cycles, simply drag and drop these cycles in the Main screen:
If you plan to calculate a committee of projection lines, set these parameters in the popup window: