Know Sure Thing (KST) and the Market Cycle Model

The construction of a long-term Know Sure Thing (KST) is a useful starting point from which to identity major market cycle junctures.

Combining the Three long term, intermediate term, short term and  trends Ideally, it would be very helpful to track the Know Sure Thing (KST) for monthly, weekly, and daily data on the same chart, but plotting constraints do not easily permit this.

It is possible, however, to simulate these three trends by using different time spans based on weekly data. This arrangement facilitates identification of both the direction and the maturity of the primary trend as well as the interrelationship between the short and the intermediate trends.

The best buying opportunities seem to occur either when the long-term index is in the terminal phase of a decline or when it is in an uptrend, but has not yet reached an overextended position. These indicators differ from the previous charts in that they are smoothed by Exponential Moving Average (EMA)s rather than by simple Moving Average (MA)s.

Trial and error suggests this substitution as more suitable for this type of arrangement. The long-term indicator is constructed from the same time spans as the monthly series; thus, 12 months becomes 52 weeks, and so on.

Only an actual Exponential Moving Average (EMA) crossover should be interpreted as a buy or sell alert for a momentum series based on exponential smoothing, not on a reversal in direction. Quite often, the long-term series stabilizes but does not reverse direction, thereby leaving the observer in doubt as to its true intention. Vital clues can often be gleaned from the action of the short-term and interme­diate series in conjunction with the price action itself.

The Know Sure Thing (KST) can also be adapted to relative strength lines. This is especially useful for the long term when applied to industry groups or individual stocks. This is because the group rotation around the business cycle means that linear up- and down trends are far less likely to develop than with absolute price data. For those who do not have access to a charting package capable of plotting the Know Sure Thing (KST), a useful substitute is the MACD, suitably smoothed with longer-term Moving Average (MA)s.