ST Outlook – S&P 500 (21 September 2011)


Current 40-day cycle status: FALLING, Day 2 of Wave Two, 10 days since cycle start.

Well! “Brief and disappointing” turned out to be the understatement of the month (so far). That is how I forecast the move up in the S&P 500 two weeks ago, and reiterated last week when the 40-day cycle trough was confirmed for 12 September 2011.

Heading down again

In the above chart you will see that the market did continue to rise briefly (and disappointingly) for the last two days of last week, struggled back up to the peak level  on Tuesday (exactly in the center of the period when the 40-day peak was expected as can be seen from the red-filled projection box), and then gave up with a strong move down yesterday. I have also plotted the 80-day FLD which I pointed out last week was providing support. These FLD support levels don’t last for very long, but it is interesting that when the 80-day FLD dropped away, so did price.

The question we now need to answer is: “Is the peak on Tuesday 20 September 2011 the peak of the 40-day cycle?” In other words, is that the highest price we will see in the current 40-day cycle?

Sentient Trader is indicating that the answer is YES, the peak on Tuesday 20 September 2011 is the peak of the current 40-day cycle (the projection boxes show this clearly). The reason it claims this peak as the peak of the 40-day cycle is because the underlying trend of the current 40-day cycle is negative (as explained last week) and the peak of a cycle with a negative underlying trend is expected early, in other words in the first 20-day sub cycle. That 20-day cycle has a slightly negative underlying trend, and so the peak of the current 20-day cycle is also expected early (with less confidence), in the first 10-day sub cycle, which is exactly the peak that we are looking at.

However such strict adherence to the guidelines of these cyclic principles is not always rewarded by the market, and so at present the peak on 20 September 2011 seems likely to be the peak of current 40-day cycle, but this will only be confirmed when price crosses below the 40-day FLD (shown in the chart below).

Median price with FLD's

It is possible, although not very likely, that price will bounce up to a higher peak from the impending 10-day cycle trough, which will turn out to be the actual peak of the current 20-day and 40-day cycles. When can we discount the possibility of this happening? When price crosses below the 20-day FLD (the purple colored FLD), at which point the peak of the 20-day cycle would be confirmed.

Is it time to sell? I would recommend some caution because price is caught up in a fairly severe FLD pause zone, however there is a level at which things will become much clearer, and that level is provided by the 40-day VTL, as shown below:

The 40-day VTL

That VTL ranges from 1137 up to 1145 over the next week, and if price crosses below it we would have confirmation that the peak on 31 August 2011 is the peak of the current 80-day cycle, and price will move down (possibly fairly swiftly) to the forthcoming 80-day cycle trough, which is of course synchronous with the next 40-day cycle trough, a trough which is expected in the middle of October.

(Note: The data I have used for today’s post differs very slightly from previous weeks because I have used data from Kinetick instead of Reuters. The difference is negligible in terms of the analysis)


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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