Cycle Analysis
declines, commodity prices will be the next to react by declining due to the higher
borrowing cost caused by rising interest rates. This will affect many companies
dependent on the cost of raw materials. Eventually, the equity markets will start to
decline. Once inflation is under control, interest rates will begin to decline, causing
bond prices to rise again. With falling interest rates, the cost of borrowing declines
and commodity prices begin to rise as liquidity floods the markets. Companies
begin to recover as businesses start to flourish. The equity market turns bullish
again. In short, the bond market is regarded as a leading indicator of potential
market tops and bottoms. The bond market turns first, followed by the commodi-
ties and finally by the equity market.business Cycles
Business cycles are usually tracked via oscillations in the level and growth rate of the
gross domestic product (GDP), which is used as an indicator of economic health and
activity. Business cycles reflect periods of expansion and contraction in the economy,
depicted by economic recession, recovery, prosperity, and growth. It is usually the
longer‐term wave cycles that determine the primary trend in the market.
The four dominant economic cycles that are frequently referred to are the:- Kondratieff Cycle: This represents a 54‐year economic cycle and it affects all
markets including equities, commodities, and interest rates. It was discovered by
Nikolai Kondratieff. This large economic cycle has accurately predicted market
tops between the years 1810 to 1820, 1865 to 1875, 1910 to 1920, and 1970
to 1980. There have been many modern interpretations and modifications with
respect to the Kondratieff theory of economic cycles since the 1920s. - Juglar Cycle: A 7‐ to 11‐year economic cycle is also purported to exist affect-
ing all markets and economies. This was proposed by Clement Juglar in 1860. - Kitchin Cycle: The Kitchin cycle is a four‐year economic cycle that also af-
fects all markets and economies. It is considered to be one of the most reliable
prognosticators of economic health. It was discovered by Joseph Kitchin. - Schumpeter Cycle: The Schumpeter wave or cycle is an economic model that
is based on the superposition of the Kondratieff, Juglar, and Kitchin cycles.
It represents the sum of these three cycles. It was proposed by Joseph Alois
Schumpeter. It has been found that when all three cycles within the model top
or bottom are in sync with each other, the model tends to accurately predict
potential economic expansions and contractions.
seasonal Cycles
Seasonal cycles in agricultural commodities exist due to the climatic impact on
crop seeding and harvesting. Seasonal cycles usually span across one year. The
four‐week commodity cycle is also predominant and many traders design trading
systems around the four‐week (or 20‐ to 26‐day) cycle. Famous examples include
the Donchian 20‐day price channel, the MACD 12‐ and 26‐day EMAs, and the
Ichimoku 26‐ and 52‐day (four‐ and eight‐week) market overlays. When trading
seasonal data, it is always wise to use the seasonals as a signal and look for price