Hurst’s Principle of Commonality states that different financial markets move with a great deal in common. A result of this is that markets tend to form troughs and peaks at about the same time (sometimes at exactly the same time), even if the magnitude of those troughs or peaks is not the same because the cycles are phased differently.
Last week I discussed the concept of cycle dominance and pointed out that the 80-day cycle trough that we are expecting to form now in the US markets might be a subtle, or insignificant trough. Such troughs are often so subtle that they might be described as hidden troughs: the cycle is turning, but the trough formed in price is hidden from view because of the strong movement of the dominant cycle.
At such times I find it very useful to look at other markets, because thanks to commonality the hidden troughs will often be more obvious in those markets. Here are some other stock indices which show a clear move down into the 80-day cycle trough that we have been expecting. Here is the Euro-Stoxx index:
And the DAX:
And the FTSE:
The move down into the 80-day cycle trough is clear in each of these markets, and makes it likely that the same move down into the 80-day cycle trough has occurred in the US markets, and that the trough itself might have formed, albeit as a hidden trough.
The S&P 500 reached to new highs again this week, bouncing out of a possible hidden (or subtle) 80-day cycle trough on Monday of this week.
We expected the 80-day trough to be subtle, and price might bounce a little further, but very soon now the 20-week dominant cycle will turn the market down.
In the Nasdaq we are tracking the alternate analysis which phases the 18-month cycle trough (as opposed to the 20-week cycle trough) at the November 2012 low. Here too, as discussed last week we are expecting the formation of a subtle trough, which probably also formed on Monday.
The Euro has been falling into the 40-day cycle trough which will cause a bounce on the way down to the 40-week cycle trough expected in March. This 40-week trough is still expected to be less significant than one would expect from a 40-week magnitude trough, but it is unlikely to be completely hidden.
Gold formed a small 20-day cycle peak this week. It might yet form a deeper 80-day cycle trough before turning up towards the 20-week cycle peak expected by May this year.
30 Year US Bonds
I mentioned last week that the 80-day cycle peak we have been expecting in US bonds might prove to be a subtle affair, and as the cyclic picture unfolds it will be clearer whether that 80-day peak occurred in January of this year (as shown on the chart below), or whether it is going to form as a very subtle peak now.
Crude Oil is also exhibiting a subtle 80-day cycle trough as discussed last week. That trough might be forming now, or might have occurred in January 2013 as shown in this analysis:
US Dollar Index
We have been expecting the US Dollar to form a trough of 18-month (and possibly 54-month) magnitude. The strong bounce in the Dollar this week just might be the first move out of that trough, or it might be a bounce out of the last 40-day cycle trough before the big magnitude trough as shown here:
Either way, it is important to remember the great value of cyclic analysis, which is in being able to anticipate turning points. I am long the US Dollar out of this week’s trough. As the move develops we will be able to ascertain whether it is merely a 40-day cycle bounce, or whether it is the big move we have been looking forward to.
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Have a great week and profitable trading!