Mikula Forecasting Company

Mikula Forecasting Company: Strategy #27: Trading With Dewey Cycles

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Written by: Patrick Mikula CTA
Copyright (c)2003-06 by Patrick Mikula All Rights Reserved. (Please to not copy or foreword this article).

Mikula Forecasting Company
P.O. Box 152672
Austin, TX 78715-2672
USA
www.MikulaForecasting.com
support@MikulaForecasting.com
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In this trading article I am going to talk about the most basic use of the traditional cycle method made popular by Edward Dewey at the Foundation For The Study of Cycles. This method is simply to correlate the pivots in the market to tops and bottoms in a cycle. On the chart below a 30 period cycle has been drawn on the IBM daily chart. At cycle top A IBM form a significant swing top. At cycle top B IBM formed started an accelerated down swing. At cycle top C, IBM formed a significant bottom. For the continuation of IBM data see the next chart.



The final cycle top for IBM is marked with the letter D. This cycle top is in the future in mid September 2005. There should be another IBM pivot or market acceleration at this cycle top. This is a very simple method to help pick the important times when a market is going to move.



The next chart shows the Dow Jones Industrial Average with two cycles. First is a 27 period cycle and second is a 9 period cycle. The fast 9 period cycle hits a lot of minor top and bottoms which we are not concerned with. The important thing to look at here is when the two cycles come together as a cycle top or cycle bottom. At point A the two cycles came together and a bottom formed in the DJIA. At point B the two cycles came together and a top pivot formed in the DJIA. The two cycle again came together at point C where they formed a top and at this point the DJIA formed a bottom. The next time the two cycle came together was point D but there was no pivot at D. This was a cycle failure. At point E the DJIA formed a bottom when the two cycle lines came together. See the next chart for the rest of this DJIA chart.



There are two new points in this chart F and G. At point F the two cycles again came together and the DJIA formed a top. the last point G is in the future and occurs near mid September and the DJIA should make a pivot around this time. Notice that the 9 period cycle is a 1/3 harmonic of the 27 period cycle. When you find a large cycle that hits market pivots quite often the harmonics of that cycle will hit the smaller pivots. You can look at these charts and see that the faster 9 period cycle hits many small pivots in the DJIA.



The next chart shows two cycles for soybeans. The long cycle is a 30 period cycle and the short cycle is a 1/2 harmonic 15 period cycle. Notice that there are three points on this chart A, B and C. At point A the 30 period cycle made a top and the soybean market made a significant bottom. At point B the 30 period cycle made a top and the soybean market made a significant top. At point C the 30 period cycle makes another top but this time it is in the future. We expect a market pivot in soybeans when this 30 period cycle top is reached in mid September.



MORE:
To see the final two charts showing the U.S. Dollar Index, read the version of this article on the MarketWarrior owners page.