ST Outlook – 16 June 2012


Last week I pondered the possibility that the 40-week cycle turn that we have been expecting in many markets was formed in price on 4 June 2012. Of the markets that we follow in this blog, Crude Oil and the Nasdaq were the two in which it seemed least likely that the trough had formed, and this week Crude Oil dipped to an ever-so-slightly lower low, and the Nasdaq continues to look vulnerable to a drop lower while the other markets behaved in such a way as to eliminate some of the alternates, and look set to provide the final word in this debate in the week ahead.

Of course as I have mentioned several times we don’t expect the 40-week cycle turn to be perfectly synchronized across all markets, and so it is likely that it has occurred in some markets, with others still to come.

S&P 500

The S&P 500 was teetering at the crossroads last weekend, and Monday’s dramatic price action crossed the 20-day FLD (confirming that the trough on 4 June 2012 is of at least 20-day magnitude), but did not resolve things one way or the other with regard to the 40-day cycle as median price for the day settled right back onto the FLD. Then price tracked the 40-day FLD through the week, and on Friday managed to leap up above the FLD, providing a messy, but adequate confirmation that the trough on 4 June 2012 was of at least 40-day magnitude. This eliminates one of the three analyses we’ve been tracking over the last few weeks, which required the 4 June 2012 trough to be of only 20-day magnitude, and we are left with only two possiblities: that the 4 June 2012 trough was of 40-day magnitude, or that it was the 40-week cycle trough we’ve been expecting. True to form the market has left us again in a state of suspense by closing the week right at the 40-day VTL and 80-day FLD levels, as can be seen on this chart which presents one of the possible analyses:

At the crossroads again

Of course an “almost-cross” is not a cross, and so we must wait to see what happens next week before we can eliminate this alternative. Here is the other possibility which has the 4 June 2012 trough as a trough of the 40-week cycle:

40-week cycle trough?

Note that here the median price (this chart presents Hurst bars with the small crossbars at median price level) has actually just squeezed over the 80-day FLD. Not, in my opinion, enough to consider this a genuine cross yet. In case you are wondering why the FLD’s are at different levels, it is because the FLD’s are calculated using the recent average cycle wavelengths, which of course differ when the analysis is different.

Nasdaq

The Nasdaq offers the same two alternatives that the S&P 500 does, but there are subtle differences.

A few weeks to go

This option has 4 June 2012 as a trough of the 40-day cycle and you can see how price has been riding up the 40-week cycle FLD since then. This analysis expects another 2-3 weeks before the formation of the 40-week cycle trough, which should of course be below the 40-week FLD, and so it is bearish for the next few weeks.

Less likely, but possible

This analysis places the 40-week cycle trough on 4 June 2012. As a matter of interest if you had made trading decisions on the basis of this analysis alone then the 80-day FLD would be a key level that must be broken soon. If instead the 80-day FLD provides resistance to price, that should be taken as a warning that the first analysis presented here is the true one and stops should be tightened.

Euro/US Dollar

The Euro also crossed over its 40-day FLD this week, making the trough on 1 June 2012 the likely 20-week cycle trough. It is useful now to step back and ask what the longer term picture is for the Euro. As discussed before I believe the long term outlook for the Euro is bearish, but there are three possibilities, presented here in order of most bearish to least bearish:

Cycles running short

Medium bearish

A long 18-month cycle

As you can see the issue is where to place the recent 18-month cycle trough. The strength of the bounce out of the 1 June 2012 trough will help us to answer this question, but the long term picture could not be described as bullish in any of these analyses.

Gold

Gold made some headway this week towards the 40-week cycle peak which is still a few weeks away. But as can be seen from the red “sell” turn zone box in this chart, the peak might not be a very impressive one:

Struggling upwards

30 Year US Bonds

Bonds have left a well-formed peak on 4 June 2012 which might be the peak of the 18-month cycle that we have been expecting, but as can be seen on the chart the 40-day FLD has not yet been broken, and so it is not impossible that we will see another peak. The 80-day FLD is also worth watching here.

An 18-month cycle peak?

Crude Oil

As mentioned earlier oil formed a subtly lower trough this week on Tuesday 12 June 2012, which might turn out to be the expected 40-week trough, but it is too early to say yet. Of course if you are planning to go long for the move out of the 40-week cycle trough those decisions should be made now (a few FLD’s are presented on this chart to help you make those decisions:)

Any day now

US Dollar Index

The US dollar is falling from its 20-week (and perhaps longer) cycle peak on 1 June 2012. It too is yet to cross the 40-day FLD, but it seems that it is on its way down to the 20-week cycle trough expected late in July. The 40-day cycle trough might have formed on 8 or 11 June 2012, or it might still be coming, but it is unlikely to provide much of a bounce.

Falling from a peak

That’s it for this week. I’ll be keeping a close eye on the 80-day FLD over the next week because it should provide the final word in the placement of the 40-week cycle turn in many markets. And then we must start looking ahead and considering what to expect out of the next 40-week cycle. An analyst’s job is never done!


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.

Leave a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>