and presidential elections – 10 November 2012 5


next to of course acts of god American presidential elections provide fundamental triggers which will tip financial markets in the direction that the cycles are leading them. Last week Hurricane Sandy (or Superstorm Sandy) caused volatility and a shortened trading week in the US markets, leaving behind a potential if uncertain 20-week cycle trough. That potential 20-week cycle trough was followed by very “corrective” market behavior, which proved to be false optimism that struggled in vain to prevent the cycles from doing what they needed to do: which was to bring the US markets down into a deeper 20-week cycle trough. This week’s US elections provided the trigger for the markets to stop fighting the cycles, and they fell hard. That 20-week cycle trough might have formed on Friday 9 November 2012 but of course it is too soon to tell. If the trough didn’t form yesterday, it is expected to do so soon. I feel obliged to remind you that when the trough does form the general outlook is still bearish, and so I continue to expect surprises to the downside.

(with apologies to e.e. cummings)

S&P 500

Last week I pointed out that the way in which the S&P 500 had been tracking along the 20-week FLD was bearish and that another fall into the 20-week cycle trough was likely. On Tuesday this week the S&P 500 rushed back up to the 20-week cycle FLD, gave it a final kiss goodbye, and took the downward plunge I was expecting on Wednesday.

Plunging into the trough

It has been 157 days since the 40-week cycle trough in June this year, or about 22 1/2 weeks, and so the 20-week cycle trough is overdue. Of course when underlying trend is bearish (as it is) troughs occur late.

Nasdaq

We have been tracking two analyses in the US markets, and I have been displaying the alternate analysis in the Nasdaq recently. This week that alternate analysis was eliminated because we have passed the reasonable length of an 80-day cycle since the trough on 25 July 2012. And so we are left with only one reasonable analysis in the US markets, the analysis that I have been presenting in the S&P 500. Here it is in the Nasdaq:

Another view of the same story

Of course we are expecting a trough of the 20-week cycle, but as I have explained at length in previous posts I believe that the US markets have some catching up to do on the downside (relative to other markets around the world) on the way down to the 18-month (at least) trough expected early next year. It is possible that the 20-week cycle trough will be a subtle affair, much as it was on the upside in January this year, in which case trying to catch the trough (even though it is of 20-week magnitude) in such a falling market could be a little like trying to hop aboard a train which is not scheduled to stop at your station.

Euro/US Dollar

The Euro is continuing to describe the bearish M-shape I mentioned last week. A 40-day cycle trough is expected soon, but here too we must face the bearish overtones. The failure of the current 80-day cycle peak in October to surpass the September peak of the previous 80-day cycle is a bearish warning that it would be inadvisable to ignore.

 40-day trough?

Gold

Gold gathered itself finally and mustered a rise towards a 40-day cycle peak . We might see this cycle peak at higher levels, but a resumption of the downwards move is inevitable.

Bouncing up to a 40-day cycle peak

30 Year US Bonds

Bonds decided not to wait, and this week burst through the 20-week FLD that we have been watching. Not only did they cross the FLD, they also fulfilled the target generated by that cross. This move makes the approaching peak more likely to be of 40-day magnitude than the 20-day peak we were expecting as shown in this analysis:

Unexpected strength

Crude Oil

Crude Oil also had a volatile week, and here too we are expecting the trough of the 20-week cycle, although this trough is not overdue because the 40-week cycle trough occurred later in oil than it did in the stock markets. This longer term picture shows the developing bearish shape of the current 18-month cycle, which is also expected to form its next trough early next year.

 Bearish cycle shape

US Dollar Index

The US Dollar is in the process of forming a peak, and is expected to come down to form an 80-day cycle trough in the next two weeks or so. The 80-day cycle that has played out since the trough of 14 September 2012 is very bullish in shape, but I am reluctant to declare that trough as being of 54-month magnitude (as discussed recently) just yet. Here is the more conservative analysis:

The only bull around

If the next 80-day cycle also develops with a bullish shape then it will be time to stop being conservative and consider the much more bullish option for the dollar.

If there were two weeks of this year that I would choose as the most difficult weeks to trade I would choose the last two. A natural disaster followed by a presidential election … it must surely get easier from here! I think it will, although easier doesn’t necessarily mean bullish!

Have a good week, and profitable trading.


About David Hickson

I have been trading for over 20 years, but only had any success after discovering Hurst's cyclic principles. Unable to find any software to speed up the analysis process I created Sentient Trader software, which now pretty much does all the analysis for me. I am a film maker and a TV director, but nowadays I mostly provide consultation services to professional traders and fund managers, helping them to integrate Hurst analysis into their trading. I'm South African and live with my family in Italy.


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5 thoughts on “and presidential elections – 10 November 2012

  • tom russo

    Ok David, tell all time. We know about your film career, but the way you are working these markets and your knowledge of math….

    tell us about your engineering background..

    I’M SMELLING ONE…

    • David Hickson Post author

      What gave it away Tom? In fact I studied engineering for a year, and then switched to architecture, so I have a degree in architecture, but continued studying mathematics as an extra course, because I’ve always enjoyed maths. I worked for a few years as an architect before going into film. What you might call a checkered career! When I finished school in South Africa I had two options: be conscripted into an army fighting for a government I didn’t support (this was the tail end of the apartheid years), or study at a university, which is why I studied engineering and then architecture. I wanted to make films but that didn’t qualify for an exemption from conscription, hence the unusual route to where I am now. A circuitous route, but at the end of the day all roads have led me back to the cycles!

  • tom russo

    the way u speak of Hurst, the way u identify with him, he was in fact, an engineer no?

    plus how u speak of the analysis

    i smelt an intuitive understanding of the underlying mathematical theory

    elementary!!

    hahahahahah

  • William

    If you are using the same analysis on the Nasdaq as the S&P500, why do they show such a great variance in the average period of the waves? An eyeball approach to the all the major US indices reveals that they all make lows and highs at virtually the same time even though the relative amplitudes differ.

  • stuart mendel

    Hi David
    Could you please show the details of your gold analysis. I have positioned the last 54 mo peak in March 2008, then the first 18 mo peak in Dec 2009, and the second in Sept 2011 but my 40 and 20 week cycle lengths are much shorter than yours and I know Hurst talked about them tending to be long.
    Best regards,
    Stuart