This postscript regards cycles. As you may already know I have spent a lot of time the past two weeks improving my existing cycle optimizer and running my machines into the ground generating new cycle baselines for the markets that I trade. The optimization is still running but is complete for SPX, DJI, ND, bonds, and dollar. There are several points regarding cycles:
1) Cycles seem powerful, but the optimization process makes all past occurrences look good. Optimization is a "cheat", in that while it twists the probabilities in our favor going forward over the next year or two, eventually the errors inherent in the cycles themselves make the tool less valuable.
2) The cycle optimizer weights certain cycles according to probability but I have found that cycles that appear in the future may or may not manifest themselves proportionally with price movement. Thus, a cycle that is relatively shallow but extends for 6 months may result in a price movement out of proportion to the cycle(s) amplitudes.
3) Cycles do not rest upon any physical causation but are merely statistical correlations with price. This makes them less reliable than I1 or the other sentiment gauges that utilize real world metrics that are not price-related.
However, used in conjunction with the sentiment gauges, when there is a confluence between sentiment and cycles it reinforces my conviction.
Here is the finalized DJ cycle chart, which does show a meaningful cyclic decline starting now: