ST Outlook – 18 February 2012

S&P 500

Three weeks ago I presented our current analysis of the S&P500 (using data for the e-mini futures contract). I discussed the 54-month cycle trough placement on 4 October 2011, and explained that we were expecting the market to fall into a 20-week cycle trough.

Price reluctantly dipped down to form a subtle trough on Monday 30 January 2012, but has since kept struggling upwards – struggling because the upwards climb has been marked by generally weak underlying fundamentals (take a look at some of the analysis at Elliott Wave International for greater insight into how tired this upwards climb has become).

The default analysis performed by Sentient Trader claims the 30 January 2012 trough as the expected trough of the 20-week cycle. If this is true then the market is now in the second 20-week cycle of the current 40-week cycle. The second sub-cycle is always the “downward” cycle of course, the cycle that completes the downward leg of the longer cycle. If the 30 January 2012 trough does prove to be the trough of the 20-week cycle, then we would expect the market to move up a little further, before falling into the 40-week cycle trough in late April/May this year (in the upper 1200’s), as shown by the projection boxes on this chart:

A subtle 20-week cycle trough?

There is an alternate analysis that claims the 30 january 2012 trough as a trough of only 40-day cycle magnitude. This implies that the market is due to fall very soon into the 20-week cycle trough, likely within the first two weeks of March, down to a similar level of the upper 1200’s. Here is the chart:

Or is it still ahead?

Until we see which of these analyses represents the true situation, I am not optimistic about the potential for much further bullish price action in the near term, and would recommend tightening the long stops in anticipation of the downward move. I am still mindful of the potential that the 4 October 2011 trough will turn out to be a straddled 54-month cycle trough, implying that the peak of the current move up should be fairly symmetrical with the peak at 1373.5 on 2 May 2011.

Euro/US Dollar forex pair

There is not much to add to the analysis presented two weeks ago, which placed the 18-month cycle trough in the Euro/US Dollar forex pair on 13 January 2012. Price action since then has played out as expected, and should now form a trough of the 40-day cycle.

Expecting a 40-day cycle trough

This trough might have been formed on Thursday 16 February 2012, although that trough is still above the 40-day cycle FLD which is not ideal. Another dip lower would be more “text-book” for the formation of the trough although the market doesn’t always behave as if it has read the text-book! After this trough the market will describe the second 40-day cycle in the current 80-day cycle, a move which is expected to breach the 20-week cycle FLD to the upside, providing further confidence in the placing of the 18-month cycle trough on 13 January 2012.


Sentient Trader is now confidently placing the 20-week cycle peak in Gold on 3 February 2012, as discussed in last week’s ST Outlook. That is because price has crossed the 20-day cycle VTL and it has breached the 40-day cycle FLD to the downside providing us with concrete evidence that the peak is of at least 40-day magnitude.

The 20-week cycle peak confirmed

Price is clinging to the 40-day FLD, a behaviour that I have noted several times in ST Outlook. It is subtle sign of weakness that the FLD isn’t providing more certain support, and price should drop away soon. The 40-day cycle peak confirmed by the VTL and FLD interaction must be synchronous with the expected 20-week cycle peak. Price is still expected to fall beneath the $1700 level in the current 40-day cycle. We will be closely watching, and discussing here, the unfolding shape of the current 20-week cycle which will help to clarify the magnitude of the 6 September 2011 peak.

Let me know if there are other instruments that you would like to see mentioned in ST Outlook. Crude Oil anyone?

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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