I have spent a good deal of this week wondering whether we were bouncing out of a 40-week or 18-month cycle trough, and John’s post about the outstanding 9-year FLD projection and the discussion surrounding that prompted me to sit down and seriously consider the alternatives.
First here is the analysis that I have been watching which has last week’s trough as one of 40-week magnitude:
What I like about this analysis is the regularity of the 18-month cycle troughs, and the fact that most of the shorter cycles phase fairly well (in other words they have troughs on suitably prominent troughs in price). What I don’t like about it is the 54-month cycle trough in November of 2012, and the fact that the recent 40-week cycle trough is so much more prominent than the 18-month cycle trough in February of this year.
Of course the latter objection might prove to be of no importance IF the market forms a much deeper trough near the middle of next year, and for that reason this is the more immediately bearish option.
Here is what this analysis looks like in the short term:
The important points to note here are:
- That the VTL that was crossed by price in early October was the 18-month VTL. This means that the 54-month cycle peak has probably formed, which is at odds with the outstanding 9-year FLD target that John discussed.
- Price has bounced back up to that VTL, as it very often does (as I mentioned in this post)
- Over the next two weeks price faces resistance from both the 18-month VTL and the 40-week FLD.
It is also very possible that we have just witnessed an 18-month cycle trough, as shown here:
There is only really one thing that I prefer about this analysis: that the February 2014 and recent October 2014 troughs have magnitudes that match the prominence of those troughs in price. Things I don’t like about it are the irregular cycle wavelengths with fairly wide ranging changes from one cycle to the next, and the 54-month cycle trough in June 2013 also troubles me.
Here is what this analysis implies in the short term:
And the important points here are:
- That the VTL that was crossed by price in early October was the 40-week VTL. This means that the 18-month cycle peak was confirmed, which might or might not be the 54-month cycle peak, and therefore allows for the possibility of another new high as suggested by the outstanding 9-year FLD target that John discussed.
- Price has bounced back up to that VTL, as it very often does (as I mentioned in this post), and so for immediate trading purposes there is very little difference.
- Over the next two weeks the market still faces fairly substantial resistance from both the 40-week VTL and the 40-week FLD.
I suppose that highlights one of the reasons that I enjoy trading using Hurst’s cyclic principles so much: this debate about the magnitude of the recent trough is a fairly academic one. When it comes down to actually making trading decisions they would have been very similar no matter which analysis one chose.
Hurst wrote that whereas different analysts would reach different analysis results, the end result of trading decisions would most often be the same. How I wish he could see the evidence of that in our discussions today!
I mentioned that the debate about the magnitude of the trough is a fairly academic one, but of course there are differences, which can be summarized as:
- If the recent trough was of 40-week magnitude that is more immediately bearish, because we do not expect a higher price than the high of late September, and we expect a much deeper (lower) trough in about 9 months time.
- On the other hand if the recent trough was of 18-month magnitude then the outlook is more bullish in the near term, and we would expect to see new highs (up to the target of 2150 as discussed by John). And the trough in 9 months time would possibly not be at a lower price, as the market will probably hold up for longer. However even if this is a more immediately bullish outlook we still expect the bearish move down into the next 54-month (and 9-year) cycle trough, it will just happen a little later.
As a matter of interest here is hybrid analysis that resolves some of those issues I brought up above, but it worsens others, as is so often the case!
I will leave you to ponder the differences. Let me know what trough you think we’re bouncing out of!