Last week I wrote that US markets would “try to cross above the 40-day cycle FLD, but given the bearish situation might not make it“. On Tuesday markets rallied close to that 40-day FLD, but then on Wednesday, a mere 2 points (vertically, 1 bar horizontally) from the 40-day FLD they faltered, stumbled further on Thursday, and on Friday gave up the effort altogether. I’ve been doing this for years, but I am still amazed by how powerful it is to have an insight into the cycles that are moving the markets.
We are still moving down into the 40-week cycle trough, and price this week completed its complex crossing of the 40-week cycle FLD, providing a target in the early 1200’s, although as mentioned previously anywhere below about 1250 seems likely. It is time to focus our efforts more intensely on determining when that trough will occur. I will present three charts, with slightly differing analyses. The first is my preferred:
The bar counts indicate that the 40-week cycle trough is expected in about 9-23 days (including weekends of course). That is easy to calculate: take the nominal average length for each cycle, and the actual average length for that cycle (on the chart at the bottom right), and subtract the number of bars that have elapsed since the most recent trough, as indicated by the bar counts on the chart.
Here is an alternative analysis (which includes the 40-day FLD I spoke about):
This analysis indicates that the 40-week cycle trough is expected in about 8-16 days.
Finally this less likely, but still possible analysis:
This analysis allows for another 32-57 days before the 40-week cycle trough. This is much less likely I think, but it serves to remind us that we might have some time to go before the trough forms. I have highlighted the 18-month FLD on this chart because it is very likely that this FLD will provide some support for price. It is around the 1200 level, which adds further confidence to our projection for a price fall into the early 1200’s. Notice the rather nasty crevasse in the last week of June, something to be wary of if we haven’t yet seen a trough by that time.
I’m on a “hot standby” (as we used to say in the film business) for the Euro to bounce up out of its 20-week cycle trough (which just might have happened on Friday 1 June 2012). The 40-day cycle is currently running at 46 days, which indicates that either this trough must form within the next 5 days, or the phasing of that most recent 40-day cycle trough is wrong.
Gold shook aside its lethargy on Friday, and made a move towards the 40-week cycle peak that we have been discussing. In the process it reached up to the 80-day cycle VTL which I have been watching. It hasn’t crossed the VTL yet (median price must cross), but it is expected to do so on its way up to the 40-week cycle peak which is expected in 5 or 6 weeks from now.
Of course the media are playing the old “Gold bullish on a flight to safety from stocks” tune again. You will know by now that I believe there is only one reason prices move – cycles (I do allow for the occasional fundamental ineraction!). I suppose the media have to have something to say!
30 Year US Bonds
I mentioned last week that bonds had “some more bull in them yet”, and that proved to be very true! Price is moving up towards the 18-month peak that we have been expecting. I present here a slightly different analysis to that of last week, to show that the 18-month peak might be 6 or 7 weeks away. Last week’s analysis is still valid, and expects the 18-month cycle peak in only 3 or 4 weeks.
There is nothing new to add to our analysis of Oil, which continues to fall towards the expected trough of the 40-week cycle. The placement of the most recent 40-day cycle trough is debatable, but doesn’t change the picture much either way.
US Dollar Index
The US Dollar has been streaking upwards in a move that is reminiscent of the US stock market’s rise in the first few months of this year. I find it useful to view the cycles as semi-circles on a chart:
When price breaks through a semi-circle in way that the US dollar has recently, I begin to feel bearish. For comparison here is what happened to US stocks after they did the same thing:
The difference here is that the semi-circle was of the 54-month cycle. Another Hurst analyst who posts to forums as Silent One is also bearish the US Dollar at the moment: read his forum post here.
The Nasdaq was beating in perfect unison with the S&P 500 this week, and ended the week touching the 40-week cycle FLD, poised perhaps to cross it to the downside:
However when price crosses an FLD very late in a cycle (according to this analysis the 40-week cycle is overdue), I have found that projections to the downside are rarely fulfilled. The 18-month FLD is not far below, and will very possibly provide support for the 40-week cycle trough to form.
That’s it for this week. Look out for our new website coming soon (same address, new look) as well as some additional ST Outlook posts from other Hurst analysts to guide you through the market’s ups and (at the moment, mostly) downs.