Financial markets are influenced by an infinite number of cycles, and sometimes untangling the interaction of many of those cycles provides a very complex puzzle. But sometimes a single cycle will overpower the other cycles to such an extent that the result is not complex at all, but is in fact very simple: a simple cycle with a move up and then a move down.
This is what is happening in many markets at the moment, and I have been discussing it in various ways in this blog over the past few months. Sometimes I find it is a good idea to take a step back, and to simply observe the cycle shapes which result from the power of a dominant cycle in the markets.
The S&P 500 has been describing the upwards leg of a simple cycle, and is approaching the peak of that cycle.
The Nasdaq has also been describing a simple upwards leg, although there has been more noise in the Nasdaq, and the move upwards hasn’t been as smooth.
The Euro has recently been describing a very simple cycle shape, and is now completing the downwards leg of that cycle. The next move will be a bounce out of the 40-week cycle trough.
Gold too has been exhibiting simpler cycle shapes recently. I have been showing an analysis that considers the cycles to be running long in Gold, which is usually the case, but here is an alternative view that assumes the cycles have been running short:
Under this analysis the small and disappointing peak that we have been expecting would be of only 80-day cycle magnitude instead of 20-week magnitude which would imply an even less impressive peak, and a continued downwards move for Gold.
30 Year US Bonds
We have seen a simplification of the cycle shapes in Bonds as well recently. The 40-week peak of the end of February is still looking as if it will be a straddled peak, and the next (or current) move in this simplified cycle shape is upwards.
Recent clear cycle shapes in Crude Oil have been of 20-week magnitude. There is no evidence yet that this has changed, and price has been bouncing out of the 18-month (perhaps longer) cycle trough of early March with the strength we would expect from a dominant 20-week cycle. This week price rose up to the 40-week VTL, which it is expected to break above. The two 40-week VTL’s form a triangle which Crude Oil is now breaking out of to the upside.
US Dollar Index
The cycle shape in the US Dollar has been very simple – almost a straight line upwards from the 18-month cycle trough of early February. Monday’s spike lower could well have been an early 80-day cycle trough, which is a subtle trough as expected. If the dominant cycle is the 20-week cycle then the US Dollar will turn down soon, but it is possible that the dominant cycle is longer and that this upwards move will extend further.
When the shorter cycles are hidden from view by a strong dominant cycle I think it is important to remember that the markets will not keep keep moving in a straight line for ever. The cycle shapes might be simpler, but they will nevertheless be cycle shapes – with a move up and a move down.
Have a great week and profitable trading!