ST Outlook – 9 June 2012


We have been waiting patiently (or in some cases perhaps not-so-patiently) for the formation of 40-week magnitude troughs and peaks in various markets. It is possible that those troughs and peaks formed this week, but before crying “TROUGH!” (or “PEAK!”)we need to take a careful look at the evidence.

S&P 500

The possible analyses I presented last week are all still valid, but the most likely analysis in my opinion makes it seem likely that the 40-week cycle trough is upon us:

40-week cycle forming a trough?

But what is the magnitude of the trough that formed on Monday? With what always strikes me as the “sense of humor” of the market, price on Friday reached the exact crossing point of three separate Hurst tools: the 20-day FLD, 40-day FLD and 40-day VTL. Here they are:

Left in suspense for the weekend

We will have to spend the weekend in a state of suspense! It seems likely that the 20-day FLD will be crossed (median price would have to fall below 1280 on Monday to avoid the cross), but if price does drop next week then the 40-day FLD and VTL might remain above price indicating that we have longer to wait for the 40-week cycle trough.

Euro/US Dollar

The Euro has also possibly formed the 20-week trough that we have been expecting, although so far it has only sneaked above the 20-day FLD in a rather unconvincing manner:

Struggling over the 20-day FLD

That is hardly surprising (the unconvincingness – if that isn’t a real word, it should be), hardly surprising though given the bearish bigger picture as discussed by José this week on the Sentient Trader forum. José points out that the Euro has recently crossed both the 9-year FLD and 9-year VTL, implying many years of a falling Euro. Here they are:

A very bearish picture

Gold

Gold has had another difficult week, struggling to rise towards the expected 40-week cycle peak. Several weeks ago I explained why I am bearish gold in the longer term, and although I do expect more of a move up now, it is not impossible that the 40-week cycle peak will form here, and the price of gold tumble downwards. This weekly chart shows how this week’s peak was above the 40-week FLD, although only barely.

Struggling to rise

30 Year US Bonds

We have been expecting bonds to form an 18-month cycle peak, and the peak this week could be it, although so far only the 20-day FLD has been crossed.

An 18-month peak?

Crude Oil

Oil has recently been very useful for providing corroboration for our stock analysis, and the biggest argument against the formation of the 40-week cycle trough this week is provided by crude oil.

Not much of a trough

Notice how the 20-day FLD has been providing some resistance to price, something that often occurs on the way down towards a trough. If price doesn’t cross that FLD soon we will know that we have longer to wait for the 40-week cycle trough in oil. Of course we aren’t expecting all markets to be perfectly synchronized at this 40-week cycle trough, and so that would not necessarily mean that the 40-week cycle has not occurred in other markets.

US Dollar Index

The US Dollar slipped this week, making the peak of 1 June 2012 a good candidate for the peak of the current bullish move. As discussed last week, I am feeling bearish about the US Dollar from here.

All peaked out?

Nasdaq

The Nasdaq also bounced this week, and of all the markets we are following, it provides us with the longest cycle magnitude for Monday’s trough: by crossing the 40-day FLD the Nasdaq proved that the trough on Monday 4 June 2012 was of at least 40-day magnitude.

The analyses presented previously are still valid, implying that we expect price will continue to rise and leave in its wake a trough of 40-week magnitude. However it is of some concern that the trough has not formed beneath the 40-week cycle FLD, and here is an analysis which indicates that, as in the case of crude oil, we have longer to wait before the 40-week cycle trough does form:

Longer to wait?

Time to wrap up for this week. One final comment! I have been reminded this week of one of the greatest benefits of trading markets according to Hurst’s Cyclic Principles: trading decisions  are made calmly on the basis of an analysis, they are not made in a state of anxiety as the market rushes up or down. I received several emails this week, the general themes of which were:

  • “Has the 40-week cycle trough formed?”
  • “Should I be buying now?”

The answers to those two questions are:

  • Possibly … but let’s wait for the evidence.
  • If you are only asking that question now, then NO. Trading decisions are always made before the market turns. We have been expecting the 40-week cycle trough for some time now, plenty of time to make calm and careful trading decisions.

I hope that ST Outlook is helping you to make calm (and profitable) trading decisions.


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>