Much of Hurst’s workwas based on his spectral analysis of The DJIA. Using mathmatical bandpass and curve fitting techniques involving some “challenging” math, he was able to produce what I have always felt was nonobjective cyclicical analysis. He then went “the other way” in his course which most of us have studied and introduced, in my opinion, “art” and subjective interpretation into the process.This has always bothered me because it results in muliple analyses, with varying cycle lengths and different projections. How do we know what is right and what is wrong? Once one learns how to use Sentient trader, one can almost always come up with 2 completely opposite outcomes, depending on the starting point and the nominal model.
The starting point is the spectrum but all spectra are not alike
Here we have a peiodogram that represents weekly USD futures going back to 1967. It shows a dominant 4 year cycle.
Here is the periodogram with an emphasis on the more recent data. Note the prominant 4 year cycle is no longer dominant, replaced by an 8 and a 16 year cycle. This is demonstating an important characteristic of financial data: cycles are not necessarily persitent, but are born, live, and then die.
A mathmatical technique that can evaluate when cycles are active are wavelets, pieces of waves. The wavelet diagram confirms what the 2 periodograms demonstated, the temporary appearance of the 4 year cycle and the persistence of the 8 and 16 year cycle.
The chart has the 8 (8.2 to be exact) year cycle plotted and is satisfactorily demonstrating the last 3 troughs.
Enhancing this wave with its 7 harmonic overtones produces a reasonably accurate price trace with only 2 major (but exact) inversions.
Now I have objective parameters to perform a cyclical analysis using an 8 year dominant cycle and harmonic supra and subcycles factored by 2 and beginning on the week of 4/95.
The analysis is presented above. I don’t like the inversion at the 2008 low. The accurate tracking of price by the composite line is, however, a good sign. This analysis points to a price peak 1/2018.
Of relevance: I just attended Martin Armstrong’s 2016 conferance. It is, and has been, his contention that the USD will rise as the chaos that we have been experiencing increases and capital seeks the “safest” place to park until we end in a soverign debt crisis begining…2018.
Armstrong’s profound understanding of cycles is on par with Hurst’s, in my opinion, but that’s a topic for another post.