ST Outlook – S&P 500 (9 November 2011)

Aren’t the markets constantly fascinating? If I had written this Outlook yesterday, I would have been questioning again the designation of the trough on 4 October 2011 as an 80-day cycle trough, which places us within the final 80-day cycle leading into the 18-month cycle trough that we have been discussing (a trough that is possibly of 4&1/2 year magnitude).

But following yesterday’s dramatic 3.8% drop in the S&P 500 I am less inclined to question the analysis, and will simply show the updated chart, and point out that the analysis we are tracking has still not changed:

The analysis remains the same

The market has a habit of stretching our credulity to the limit, and just when we sigh and pull out our pencils and erasers (or computers) and start “reworking” the phasing analysis, it seems to say: “Surprise! You were right all along.” And so I am still expecting the S&P 500 to fall into the 18-month cycle trough towards the end of this year, possibly early next year.

There is a possible alternate analysis, which differs only in calling the trough of 4 October 2011 a 20-week cycle trough:

An alternate analysis

As you can see the implications of this analysis are very much the same – price is expected to fall into the 18-month cycle trough towards the end of this year, early next year. I don’t favor this analysis because of that very stretched 20-week cycle, which results in the 20-week “gap” in the forthcoming nest-of-lows, always an indication of a possible analytical flaw.

There is of course the analysis that considers the trough on 4 October 2011 a trough of the 18-month cycle:

Was 4 October 2011 a trough of the 18-month cycle?

This is my least favorite option because of two persuasive reasons:

  • The very short cycles that it requires coming into the 18-month cycle trough, at a time when we would expect these cycle troughs to occur late (because of underlying trend).
  • The fact that the long-term phasing of cycles 54-months and longer would have to be reconsidered (all the way back to the 1990’s).

I show this analysis here because it is an outside possibility that we should keep our eyes on. If yesterday’s strong move down has some follow-through to the downside (as I suspect it will) then this alternative will soon become invalid.

I am constantly intrigued by how FLD’s often provide support and resistance. Take a look at how the 40-week and 18-month FLD’s have provided staunch resistance recently:

FLD's providing resistance

Notice that 18-month FLD peak in January 2012? If the markets were perfect, (which of course they never are) then that peak tells us to expect the 18-month cycle trough in January 2012.

And what about the near future? Here are the shorter FLD’s:

Shorter FLD's

Those shorter FLD’s are lining up into an imperfect cascade pattern (there is a bit of a gap before the 20-week FLD). This adds support to the idea that we are entering into the “home straight” for the move down into the forthcoming 18-month cycle trough. This is likely to be a nasty downward move that develops into a “plunge”.  Which is why I am not in agreement with my non-Hurstite friends who see yesterday’s downward move as another buying opportunity.

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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