ST Outlook – S&P 500 (14 September 2011)

Current 40-day cycle status: RISING, Day 3 of Wave One.

In last week’s update I indicated that we were expecting a 40-day cycle trough, to be followed by a potentially “brief and disappointing” move upwards.

The 40-day cycle trough has occurred, at 1134.50 on 12 September 2011, a perfect 34 days (the nominal length of the 40-day cycle is 34.1 days) after the previous 40-day cycle trough (the trough synchronous with the 20-week trough on 9 August 2011.

40-day trough on 12 September

And so price is now moving up. The reason why the move up is expected to be brief and disappointing is because the underlying trend of the current 40-day cycle is negative, with the pressure of 4 cycles pressing price downwards, and 2 cycles pushing upwards, for a net 2 cycles downwards, as can be seen clearly in the current cyclic model table (simply add up the arrows for the cycles longer than the 40-day cycle):

Current Cyclic Model

A cycle with a negative underlying trend is expected to experience a low and early peak, hence the “brief and disappointing”. Just how brief and disappointing is not yet clear, but surprises are more likely to the downside.

Median chart with FLD & VTL

This median-line chart shows that the 20-day FLD has been crossed, thereby confirming the 20-day cycle trough on 12 September, and by the Principle of Synchronicity the 40-day cycle trough as well. The 10-day VTL has not yet been crossed. If price does cross the 10-day VTL that will provide further confirmation of the 20-day (and 40-day) trough and provide a rough projection for the peak.

Notice how price is “riding” up the 40-day and 80-day FLD’s. Here is a clearer picture of price riding the 80-day FLD:

Price riding the 80-day FLD

This is something that one often sees. Hurst didn’t mention it (to my knowledge), but it was something I came across while developing Sentient Trader, and these support FLD lines are often very useful.

In the short term price is expected to cross above the 40-day FLD, although that doesn’t require a further move up as the FLD itself falls below 1160 next week, and price would cross simply by remaining at current levels.

In the medium term price will of course cross below the 80-day FLD, confirming that a peak of the 80-day cycle has been formed, and that price is moving down towards the next 80-day (and synchronous 40-day) trough.

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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