Being Bullish – 11 May 2013 4


Before I discuss the markets, we have some exciting news this week: we are launching a brand new Hurst Signals (2) service. We have taken all the very valuable feedback from our original Hurst Signals service and produced a simple but powerful online Hurst solution. Cycle projections are presented simply and clearly on charts that are viewed in a browser, and updated several times a day. If you are interested in how Hurst cycles are moving the markets, and want to make trading decisions on the basis of an expert analysis then Hurst Signals (2) is made for you!

Let’s take a look at the markets. 

One of the basic tenets of Hurst’s Cyclic Principles is that many cycles combine to influence the price movement. In particular the combined effect of longer cycles (which is called underlying trend) will influence how far price moves will extend and for how long. For instance if the underlying trend is bullish, one can expect peaks to occur higher and later.

The terms “higher” and “later” are unsatisfactorily vague, and so I find it useful to calculate a number which represents the “bullishness” of a cycle. This number is a percentage: 50% is a completely neutral cycle shape in that it is neither bullish nor bearish. Above 50% is a bullish cycle, and below 50% is a bearish cycle.

Because of the harmonic ratios between the cycle wavelengths in the cyclic model that we use to understand the markets, there is usually a simple sequence to the bullishness of a particular cycle. For instance when bouncing out of a trough which is synchronous with a much longer cycle trough the bullishness is likely to be very high. The next cycle is likely to be less bullish.

One can generally guess at the expected bullishness of a cycle by looking at the magnitude of the cycle trough that forms the starting point for the cycle move. This is by no means an exact science, but I find it useful to help me understand when and where market turns are likely to occur, particularly when the turn is a peak (peaks are notoriously difficult to predict).

S&P 500

Here are the bullish measures for the 40-week cycle:

Reaching the bullish peak

Notice that the cycle bouncing out of the 54-month cycle trough of October 2011 (this could be debated of course …) had a bullishness of 75%. The next cycle was, as expected, less bullish at 65%. The fact that both of these cycles were bullish (above 50%) is one of the reasons that I believe the October 2011 trough was of 54-month magnitude.

What does this tell us about what to expect now? The current 40-week cycle is bouncing out of the 18-month cycle trough of November 2012, a lesser magnitude trough than that of October 2011, and so we expect it to have a lower bullishness. The exact bullishness can only be measured once the cycle completes, but if a peak forms now in the S&P 500 the bullishness will be about 71%, and so I expect the 40-week cycle to peak soon.

Nasdaq

Here are the bullish measures for the 40-week cycle in the Nasdaq:

Matching the previous bullishness

Here too we expect the current 40-week cycle to have a bullishness of less than 79%. The current estimate is at 70%, indicating a peak is approaching, but I have not been surprised to see the Nasdaq outperform the S&P 500 recently – it can afford to be more bullish.

Euro/US Dollar

These are the bullish measures of the 20-week cycle in the Euro / US Dollar pair:

Turning bearish

Note the 62% bounce out of the 18-month cycle trough of July 2012, then as expected a less bullish cycle at 55%. Price is falling now into the 40-day cycle trough as discussed previously, a move that has been fairly strong. The reason for this bearish strength is that the longer cycles are turning down, and the current 20-week cycle is expected to have a bullishness of less than 62%, and could very possibly be a bearish cycle with a rating of less than 50%, carrying prices lower than the recent 40-week cycle trough in April.

Gold

The analysis I perform on Gold is inverted, with synchronized peaks, and so the figures here are for a bearishness rating: the higher the number the more bearish is the cycle. Here is the bearishness of the 40-week cycle:

More bearish than expected

The sequence of 66% – 42% was as expected following the 54-month (at least) cycle peak of September 2011, but the recent drop has produced a more bearish cycle than expected, currently at about 77% bearishness. It does suggest that much longer cycles have turned bearish in Gold.

30 Year US Bonds

Bonds are showing an imperfect progression of bearishness in the 20-week cycle following the 18-month peak of July 2012:

An imperfect sequence

Price is now falling away from the 40-week cycle peak, and it is showing some enthusiastic bearishness, which is likely to at least match the previous cycle’s level.

Crude Oil

Crude Oil is bouncing out of a big magnitude trough, of at least 18-month strength. Here are the bullish ratings for the 20-week cycle:

Expecting more bullishness

The current 20-week cycle is expected to be a bullish one, with a rating of greater than 62%.

US Dollar Index

The US Dollar is bouncing out of the 80-day cycle trough that we have been discussing here. These are the bullish ratings for the 40-day cycle:

Expecting less bullishness

The combination of a bullish (81%) and bearish (32%) cycle is very common. The current 40-day cycle is not expected to be as bullish as 81%.

Have a great 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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4 thoughts on “Being Bullish – 11 May 2013

  • Alex

    Hi, I don’t quite understand your comments on Euro. With the white dash line arrow upward, did you mean that the upward cycle is still on, and the down move is only a correction? In addition, how is that 62% and 55% calculated? I can’t get it by comparing price levels such as 13171 to 12041.

    Thank you very much for your time.

    • David Hickson Post author

      Hi Alex. Yes, I meant to indicate that the upwards cycle is still underway in the Euro – the 20-week cycle should go further up to achieve a higher bullish rating. If we have seen the peak of the 20-week cycle already then it will have a bullish rating of only about 30%, which would be unusually low. I calculate the bullish rating by averaging the time ratio and the price ratio for a full cycle move. In other words I take the trough to trough distance, and work out where the peak is between them – if the peak is on the first bar then it is 0%, if it is on the last bar then it is 100%, and if it is right in the middle it is 50%. Then I do a similar thing with price, comparing the up move to the down move. If they are equal then the price ratio is 50%, if the up move is twice as large as the down move then the price ratio is 75%, and so on.

  • robert zella

    I don’t get how Oct 2011 can be a 54 mo lo. Could you please label your 80 week and 54 month lows starting March of 2003? What was Mar 2009…4 1/2, 9, 18 year???
    Where/how does the 80 week period between Aug 2007 and Mar 2009 fit into the larger cyclic picture?? TIA Robert

    • David Hickson Post author

      Hi Robert. October 2011 as a 54-month cycle trough is one of potential analyses that I believe is possible. I presented the analysis in this post recently, and have mentioned it a few times previously. In that post you can see the position of the cycle troughs you mention, although I don’t place the 9-year or 18-year troughs because I’ve been focusing on the shorter cycles here (that’s an idea for a future post). You will see that according to that analysis the cycle between August 2007 and March 2009 is so bearish because of the influence of a six-year cycle (what I have described in earlier posts as a harmonic echo). Whether this is true or not I cannot say, but it is an interesting idea, and the alternative is that the March 2009 trough is the 54-month (possibly longer) trough, which means the recent 18-month cycle trough is also a 54-month trough – and that picture doesn’t look right in my opinion.