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The Cycle Turn and Trend Indicator Applied to Oils and Copper

Commodities / Cycles Analysis Jan 25, 2007 - 01:27 PM GMT

By: Tim_Wood

Commodities If I could only have one indicator it would be the Cycle Turn Indicator. This indicator is primarily used on the intermediate-term weekly charts to tell me the current market direction and to identify intermediate-term turn points. Staying on the right side of the market really is as simple as following this indicator, which we do. The Dow theory, cyclical and statistical work is used to "look over the horizon" and to tell us what we should expect further down the road in the future. My basic philosophy is to use the Dow theory, my cyclical and statistical analysis to develop the longer-term market expectation, all the while using the very important intermediate-term Cycle Turn Indicator in the interim.


Sometimes, the longer-term expectations will change and some times they won't. In any event, by following the intermediate-term Cycle Turn Indicator I am able to confirm important turn points or trend changes. Then, if the move out of that important turn point happens to impact the longer-term forecast, so be it and I can act accordingly. In effect, this method allows me to work both ends to the middle in that I have both long-term expectations, but in the interim I can also position in accordance with the intermediate-term Cycle Turn Indicator. Let me also add that another tool I use in conjunction with the Cycle Turn Indicator is my Trend Indicator. Now, since we all have an interest in gasoline, I have chosen to use it as an example of how important it is to use and follow these indictors.

Below is a weekly chart of unleaded gasoline. The indicator in blue is my intermediate-term Cycle Turn Indicator and the one in green is my Trend Indicator.

If both indicators are moving up, then the trend or cycle in the underlying index is clearly moving up.If the Trend Indicator is moving up, but the Cycle Turn Indictor is moving down, then the market is in a counter trend correction. In other words, the higher degree is moving up while the lower degree is moving down.

By the same token, when both indicators are moving down, then the underlying cycle or trend of that degree is clearly moving down. If the Trend Indicator is moving down and the Cycle Turn Indicator is moving up, then the higher degree is moving down and a counter trend bounce is at hand.

weekly chart of unleaded gasoline

Let's begin with the June/July price action. As unleaded gasoline advanced up out of the late June low, the weekly Cycle Turn Indicator initially turned up confirming that low. But, this indicator peaked the first week of July and then turned down. I then began warning subscribers that a top was in the making. In early August a full blown intermediate-term sell signal was triggered and I even shared that signal in an article on this site. I also showed charts of the oil services sector and crude oil explaining that the indicators had turned there as well. The problem for most people was that at that time everyone was expecting $100 per barrel oil and $5 a gallon gasoline, so very few believed the signal as their preconceived notions lead them.

Then, as unleaded gasoline dropped into the September/October low, I began explaining that price was oversold and that the weekly Cycle Turn Indicator was warning of a bottom. The week of October 27th an intermediate-term buy signal was triggered. I explained to subscribers that the advance out of that bottom was underway and that higher prices were expected, but that the move up should be a counter-trend bounce. The reason I said that the advance out of the September/October low was expected to be a counter-trend move was because of the fact that the intermediate-term Trend Indicator had also turned down. Additionally, both the long-term Trend and Cycle Turn Indicators had rolled over in association with the July/August top and this obviously was indicative of lower prices for the longer-term. I have included a monthly chart with these indicators below.

unleaded gasoline dropped into the September/October low,

Now, here we sit with a price down turn out of what indeed appears to have been a counter-trend bounce, just as originally expected based on the Trend Indicator. Two weeks ago the intermediate-term Cycle Turn Indictor turned down triggering another intermediate-term sell signal on unleaded and crude. As a result, price is now retesting the September/October lows. With both the long and the intermediate-term indicators negative, odds strongly favor a violation of these previous lows, which would then even point toward lower prices. So, until the intermediate-term Cycle Turn Indicator turns back up, the recent intermediate-term sell signal stands and lower prices are expected. I will add that the price action, as we approach this support level of the September/October lows, is very very important.

To share another example of the importance of the Cycle Turn Indictor I want to show you a chart of copper. The chart below is a weekly chart and again the indicator in blue is my intermediate-term Cycle Turn Indicator and the one in green is my Trend Indicator. The weekly Cycle Turn Indicator began warning in May and finally triggered a full blown sell signal on June 1st. Furthermore, the long-term monthly Cycle Turn Indicator, also turned down in June telling us that an even more important top had been made and with the monthly Cycle Turn Indicator negative, any upturn of the intermediate-term Cycle Turn Indicator was expected to be a counter-trend bounce, which it was. Then, by early August the intermediate-term Trend Indicator further confirmed the importance of the top with its down turn.

below is a weekly chart

The much longer-term monthly copper chart can be found below. Note that the monthly Trend Indicator has now rolled over below its trigger line and is now negative as well. The bottom line is that until the weekly Cycle Turn Indicator turns back up, lower copper prices remain in the cards.

longer-term monthly copper chart

These indicators are applicable to the stock market, gold, the dollar, bonds or any other market for that matter. I routinely follow and report on the stock market, gold, bonds and the dollar in my newsletter and short-term updates. I also occasionally report on other markets such as oil, gasoline, silver and copper as they reach important turn points. I also now have very detailed analysis available on the 4-year cycle in the stock market that is a must for anyone with an interest in the stock market.


By Tim Wood
Cyclesman.com

Tim Wood specialises in Dow Theory and Cycles Analysis - If you are interested in a statistical and technical based source that also utilizes Dow theory and provides statistical probabilities as to what should occur, then Cycles News & Views may be for you. I also provide web-based updates giving short and intermediate-term turn points on the stock market, gold, bonds and the dollar, utilizing my Trend and Cycle turn Indictors. A subscription also includes short-term updates three nights a week. Please see www.cyclesman.com/testimonials.htm .


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