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11  An Example Of Shcwt-Duiation Cyclicality must be covered by the data. Effort can be minimized here by following the rule of a minimum of six or seven data points per cycle. Any time you run out of cyclic samples in your data, it is time to contract your display (if you desire information on longer duration cycles). We will choose contraction for the purposes of further illustration. In Figure II-7, the DJIA is extended into the past to May 1949 on a monthly basis. This plot is constructed on a logarithmic rather than a linear scale. This device is useful whenever the sum of all trends and components longer in duration than the cycle of interest is extremely steep. The same plot is reproduced as Figure II-8, with the famiUar constant-width envelope added and distractions removed. Over this 20-year time period, four samples of periodicity are present The duration is 52 ± 1 months. The cyclic model leads us to expect a component of 4.5 years duration, or 54 months. We have obviously isolated this (nominal) model component in our example. We will not proceed further with this illustration of the cyclic model in action in the DJIA, since our purpose has been served. The procedure in such preliminary analysis is now clear. And the purpose is to obtain dominant component identification (using the cyclic model as a guide); determine the near past nominal durations and expected variation; and pinpoint the location in time of the last low of each component.The ways of using this information to improve transaction timing will be made clear in subsequent chapters. Before leaving the subject, two additional key .features of the model require
1000 | | 1950 | 1951 | 1952 | 1953 | 1954 | (9SS | | (957 | 1958 | 1959 | 19 | 1961 | | 1983 | 1964 | 1965 | | 1967 | | | »00 700 600 | | | | | | | | | | | | | | | | | ,. ,14it | Ai .1 llll 1 | | | | | | | | | | | | | | | | | ...mmI | III* l"l | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | „1<" | >lllll,tf | | „lll | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1" | t II llll | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | A..... | hllli | | | | | | | | | | | DJ | 30 t lONT* | 40US- 1 | TRIAL -LO | | | | | | | | | | | | | | | | | | | | | | IRE Hl | | | | | |
The Longer Duration Cycles Require Monthly Data
FIGURE - -51 MONTHS- 53 MONTHS 52 MONTHS- OJ 30 INDUSTRIALS MONTHLY 1 0 -52 MONTHS-- The Infamous "Bull-Bear" Cycle JAN. 1669
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