Stock Market Chop Continues

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Lesson – Interaction of Short & Long Cycles - IWM

• Financial instruments are affected by cycles of different lengths. Often, there are conflicting signals from long and short cycles. 

• This lesson will explain how to interpret such situations using a real-time example of IWM, Russell 2000 ETF.

• The upper chart shows the daily cycle composite comprising several cycles detected on the daily chart.

• The lower chart shows the weekly cycle composite comprising several cycles detected on the weekly chart.

• Although there is some overlap between the sets of cycles included in the daily cycle composite and weekly cycle composite, the cycles in the latter are generally longer than the cycles in the former.

• The weekly cycle composite suggests a cycle peak at the end of May’25 and a cycle trough in Oct’25. Always provide for some tolerance to the estimated cycle peaks and troughs.

• The daily cycle composite indicates cycle peaks in early May, August, and late October. The cycle troughs are estimated in late May and early October.

• How do we reconcile discrepancies between the daily and weekly cycle composites?

• When the daily cycle composite indicates a peak at t=X, if the weekly cycle composite is still rising, that peak will likely be right-translated (RT) to t+Delta. 

• When the weekly cycle composite declines, the estimated daily cycle peaks will likely be left translated (LT) to t=X-Delta.

• There is a similar reasoning for daily cycle troughs. 

• If the weekly cycle composite is rising, the estimated cycle troughs will be LT by Delta.

• If the weekly cycle composite is declining, the estimated cycle troughs will be RT by Delta.

• In the IWM example above, the late March peak on the daily chart will likely be RT into April. The early June trough will likely be LT into May. Moreover, the price trough for the latter may be shallow. Maybe it will be just a consolidation.

• When the daily and weekly cycle composites peaks/troughs rhyme, e.g. Jul_Aug’25 and Oct’26, the price peaks normally occur within the tolerance range (red double arrows in the chart above) of estimated cycle peaks/troughs.

• Similar considerations apply when we analyze two cycles only, one long and another short.

• Cycle peaks/troughs are not used to determine price levels. Thus, one should not derive price levels from the amplitudes of cycle composites.

• The only purpose of cycle composites is to estimate price turning points.

• Other methods are used for the prediction of price levels, such as cycle-based price projections, Elliott Wave and technical analysis, and Fibonacci levels.

Read more on our Educational Resources Page. 

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  • A brief post about the Fear & Greed Index and a possible implication.

• An interesting view of potential Nasdaq 100 (NDX) technical patterns.

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