The chart below is a time series analysis of the current 2009 cyclical bull market analyzing a potential springtime "throw back" (Edwards Bassetti 2007) and ends with historical market data suggesting a logical time frame of the next cyclical bear market .
I love cycles. I can't help it. I see them in everything around me. Everything has a rhythm. In fact, if things did not have inherent change, the human perceptual system is designed to ignore them. If someone puts their hand on your arm, at first, you notice it. But then, after a few minutes, that initial sensation fades and as long as it remains, without any movement, your brain will more or less ignore it. If it moves again, the perceptual system will pick it up and start over again. So it is with cycles, and especially with stock market cycles! This is because when it changes, it changes your profit and loss; a particularly sensitive perceptual system to say the least. So I spend many hours scheming about how to quantify these cycles and convert them into profit.
One of the things I love the most about cycles is, they are anticipatory. By nature, a cycle extends into the future. This is different than any other form of market analysis, because a cycle is a projection in time. Most people are not even capable of imagining the stock market in terms of time alone. They are too busy dealing with the perceptual and sensory issues of price. For me the time component is where it is at then; it is the component of analysis others sometimes ignore and it is the single biggest edge you can have in trading small and large market cycles.
For this reason, I have made available to the TideTrader.com community my cyclical and secular S&P 500 drawing outlining historical data that was carefully processed to forecast future S&P 500 market behavior the forecasts a potential springtime throw back and ends with historical market data suggesting a logical time frame of the next cyclical bear market .
I'm sure to receive some noise from the many traditionally trained technical analysts, fundamental analysts and economists that question the validity of using past data to predict the future. It is surprising how often critics of the technical approach bring up this point because every known method of forecasting, from weather predicting to fundamental analysis, is based completely on the study of past data. What other kind of data is there to work with?
The field of statistics makes a distinction between descriptive statistics and inductive statistics. Descriptive statistics refers to the graphical presentation of data, such as the price data on a standard bar chart. Inductive statistics refers to generalizations, predictions, or extrapolations that are inferred from that data. Therefore, the price chart itself comes under the heading of the descriptive, while the analysis technicians perform on that price data falls into the realm of the inductive.
As one statistical text puts it, 'The first step in forecasting the business or economic future consists, thus, of gather observations from the past.' (Freund and Williams) Chart analysis is just another form of time series analysis, based on a study of the past, which is exactly what is done in all forms of time series analysis. The only type of data anyone has to go on is past data. We can only estimate the future by projecting past experiences into that future.
So it seems that the use of past price data to predict the future in technical analysis is grounded in sound statistical concepts. If anyone were to seriously question this aspect of technical forecasting, he or she would have to also question the validity of every other form of forecasting based on historical data, which includes all economic and fundamental analysis."
Best trading to all …
Written by Highfivepicks: Member of the Tidetrader.com investment community