ST Outlook – Euro/US Dollar (11 November 2011)

Four weeks ago I debated the magnitude of the trough on 4 October 2011. Either the 80-day cycle or the 18-month cycle was the longest cycle experiencing a trough on that date. The debate is still unresolved, although I continue to favor the 80-day cycle option. The first 40-day cycle since that trough has most likely completed with the trough on Thursday 10 November 2011:

40-day cycle complete?

I mentioned that the shape of the 40-day cycle following the trough of 4 October 2011 would provide a clue as to the magnitude of the 4 October trough. What does the cycle shape reveal?

The 40-day cycle shape

This is the shape of a cycle with a (slightly) positive underlying trend. The peak occurs in the second 20-day sub-cycle, but only just, at 23 days into the cycle. Hurst recommended that only the two cycles longer than the trading cycle should be considered when making trading decisions, and indeed Sentient Trader does the same, by considering the “short underlying trend” of the cycle. If the trough on 4 October 2011 was of 18-month magnitude then the short underlying trend would be strongly positive. If the trough on 4 October 2011 was of 80-day magnitude then the short underlying trend would be neutral.

The above cycle shape implies an underlying trend that is only slightly positive, and so the market continues to elude an absolutely definitive analysis (as it often does), but a slightly positive underlying trend is more likely to be neutral than strongly positive. A strongly positive underlying trend is unmistakable. And so I continue to favor the analysis with an 80-day cycle trough on 4 October 2011. This implies another 40-day cycle to elapse before the 18-month cycle trough.

Of course the forthcoming 40-day cycle has a negative underlying trend, and is expected to carry prices lower. We would expect the 18-month cycle FLD to be crossed to the downside before the formation of the 18-month cycle trough. Here is that FLD (and the 80-day cycle FLD):

FLD levels

It is quite possible that these two FLD’s will provide support for price over the next week or so, after which price will cross beneath them. And so I will be looking for shorting opportunities in the forthcoming 40-day cycle. If these shorts are disappointing and price does not fall lower over the course of the next 40-day cycle then we will accept that the magnitude of the trough on 4 October 2011 was of 18-month magnitude, and look to taking some long trades.

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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