Opening Position
April 2007
Cyclical movements play a significant role in the financial markets. This, naturally, sways your mind into thinking that you need to "buy on the dips" and "sell at the peaks." But these dips and peaks are not that simple to detect. If they were, the financial markets wouldn't exist. The markets thrive on the magnitude and diversity of its participants. It is these participants who generate the changes in market value. Think about it for a second: if all market participants acted similarly, the markets would break down. If you look back at every market crash, you would see that prior to the crash everybody was buying. Nobody was even thinking of selling or going short. And this marked increase in the bullish sentiment is what made the market so fragile that it eventually cracked and came tumbling down. And many suffered from it. Another factor to keep in mind is that the characteristics of these participants are constantly changing as well. In today's society, for example, businesses are turning over products and services much more rapidly than they did in the past.
SO to truly understand the changes in market value you really need to understand human behavior. In this issue of Technical Analysis of STOCKS & COMMODITIES we focus on the topic of cycles and their significance in the financial markets. In the article "The Missing Cycle" by Martha Stokes you'll find a general discussion on market cycles, but in addition, you'll also learn and understand what drives the cyclical behavior of the markets. You may be surprised to discover that it has nothing to do with business cycles, economic cycles, or Presidential cycles. In fact, you may suddenly find yourself wondering where to find a book or class on crowd behavior. Intrigued? The article starts on page 19.
WE were also fortunate to interview Bill Meridian of Cycles Research, who is a pioneer in the study of cycles. He has found the existence of cycles going way back. His global outlook and correlation of cycles to certain historical events would make any trader think differently in analyzing a chart. There's a lot more to a chart than just numbers. What you need to do is go behind these numbers and understand the human element. Only then will you be able to trade the markets with a logical foresight.
Jayanthi Gopalakrishnan,
Editor
Originally published in the April 2007 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
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