ST Outlook – 24 March 2012


The US markets have formed peaks and now the big question is: “was that THE peak?”, in other words is that the expected peak of at least 40-week magnitude, or was that just another small peak on the way up to yet higher levels? Peaks are notoriously complicated when analyzing a market using Hurst’s Cyclic Principles because of the principle that troughs of cycles (in stock prices) are synchronized, and peaks are not. Therefore the identification of a peak of one cycle does not imply that the peak of another cycle is also confirmed, as is often the case when identifying troughs. And so one has to consider the evidence very carefully.

S&P 500
Let’s consider the evidence. First of all the two potential analyses that we have been following for the past few weeks are still both valid, and so we must consider the evidence of both of them until we are able to confirm which analysis is the true one.

Here is the analysis which positions the most recent 20-week cycle trough on 30 January 2012:

20-week cycle trough on 30 January 2012

Price is expected to fall into an 80-day cycle trough in early April. A trough of the 20-day cycle is expected right about now, and then we would have one further (bearish) 20-day cycle to carry us down to the 80-day cycle trough. It is tempting to label the 19 March 2012 peak as a peak of this 80-day cycle, and a peak of the 20-week and 40-week cycles, but can we do that? Note the 20-week peak projection box (at the very top of the chart) which indicates that the 20-week cycle may have more time and price move in it yet before reaching its peak. Here is the FLD and VTL evidence:

FLD's & VTL's

As you can see median price has crossed the 5, 10 & 20 day FLD’s, and the 5 & 10 day VTL’s. This confirms the peak on 19 March 2012 as being of at least 20-day magnitude. The peak could be of greater magnitude, but that is pure supposition at the moment. The downward projection generated by price crossing below the 20-day FLD on Thursday night does not take price below the 40-day FLD, and so it is quite possible that price will form the 20-day cycle early this week, and then ride up the 40-day cycle FLD for a short time. But surprises are likely to be the downside because of the bearish underlying trend of the next 20-day cycle, and so it is also possible that the 20-day cycle trough will turn out to be merely a brief pause and that price will drop through that 40-day cycle FLD sooner rather than later. Note how close the 20-week VTL is – if price crosses that VTL the implications are indeed very bearish.

Now let’s take a look at the other analysis that might be playing out:

20-week cycle trough on 6 March 2012

The distinction between the two analyses is subtle, and the implication of both is very much the same. Here too it is possible that the 20-week cycle has a little more upside potential, but once it turns down the downside potential is greater. Is it possible in this analysis that the peak of the 20-week (and 40-week) cycle occurred on 19 March 2012? Yes, it is possible, but before jumping to conclusions, here are the FLD’s and VTL’s:

FLD's & VTL's

Again the differences are subtle, and in fact the evidence concerning the magnitude of the 19 March 2012 peak is the same: it is of at least 20-day magnitude (the 10-day VTL has been crossed, even though the 20-day FLD has not yet).

And so where do we stand? The peak of 19 March 2012 was of at least 20-day magnitude, and although it is possible that we may see higher prices within the next 4-5 months, the bearish potential is becoming stronger with each passing day, and one should be prepared for falling prices.

Euro/US Dollar

The Euro/US Dollar forex pair did not form another trough this week, making the possibility discussed last week that the trough of 16 March 2012 was a trough of the 80-day cycle even more likely.

An 80-day trough on 16 March 2012?

Price has also crossed above the 80-day cycle FLD, although it is not a very clean crossing as can be seen above. The 40-day FLD might provide some resistance over the next week or so, but it seems likely that we are now in the second 80-day cycle since the 18-month trough in January of this year. This 80-day cycle has a fairly neutral underlying trend.

Gold

Expecting an 80-day cycle trough

We are expecting the 80-day cycle trough in Gold, which might have occurred on Thursday 22 March 2012. As discussed previously I will be watching the unfolding shape of this 80-day cycle which should soon start carrying the gold price upwards, although the peak projection box (red colored box) on this chart looks a little optimistic to me.

How will we know when the 80-day cycle trough is confirmed? Here is the detail:

FLD & VTL levels

This analysis shows the 20-day cycle peak on Monday 12 March 2012, which is possibly too early, and might prove to be a peak of the 10-day cycle, in which case the peak of the 20-day cycle is still expected. Cycles do have a tendency to run longer in Gold, and so that is quite possible. In terms of confirming the 80-day cycle trough we need to watch the 40-day and 80-day FLD’s.

30 Year US Bonds

A clear trough on 19 March 2012

The 30-year bonds formed a clear trough on Monday 19 March 2012, which looks very likely to be the 80-day cycle trough (not yet confirmed) which we mentioned last week. This implies that prices are now rising towards the 80-day cycle peak expected in early April. This is likely to be bearish for stock prices, adding further weight the bearish outlook for stocks in the next few weeks.

Crude Oil

The 40-day cycle trough on 15 March 2012 which was mentioned last week is still looking well positioned. The price of oil is trapped in a bit of an FLD congestion zone at present, but it is expected to resolve to the downside as it moves down to the 80-day cycle trough as shown here:

The likely 40-day cycle trough

Note the 80-day cycle peak projection box hovering just above price. It is possible that the peak isn’t yet fulfilled, but the peak on 1 March 2012 satisfied the price projection, and so it seems likely that oil is going to be descending in unison with stocks into the 80-day cycle trough. Here is the detail with FLD lines which will be encountered on the way:

A straddled 40-day trough?

That wraps up our ST Outlook for the week. Trade well and may the cycles be with you!


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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