Looking Ahead – 4 April 2014 1


Last week I discussed (on the Sentient Trader blog) why it was time for a bounce in the US stock markets, and they obliged this week with a strong move up. The cyclic analyst must always look ahead to the next move, and as markets make new highs (albeit in a fairly fractured manner), we need to prepare for the next move, which will of course be a move downwards.

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Pin-pointing peaks is a notoriously tricky business because of the fact that cycles in stock markets have synchronized troughs but not peaks, which results in the formation of fairly complex peaks (as opposed to the simpler, more isolated troughs).

And so looking ahead it is often easier to consider when the next important trough is expected to happen, knowing that a peak will precede that trough, without being too specific about the timing of the peak. There are two valid alternates in my opinion for analyses of the S&P 500. Here is the first:

80-day trough behind us

This analysis shows the cycles “running short” compared to Hurst’s nominal model, and an 80-day cycle trough on 27 March 2014. The next 40-day cycle trough is expected in about three weeks, as marked by the yellow arrow. And so I expect a peak to form before that. As a matter of interest if price crosses below that 80-day VTL (the cyan dashed line) on the way down to the 40-day cycle trough it would indicate that the 20-week cycle peak was in place, and we wouldn’t expect to see higher prices until the bounce out of the 20-week trough expected in late May (and quite possibly not even then, as the peak could have a magnitude greater than 20-weeks).

Here is the alternate analysis, which has the 17 March trough as a 40-day cycle trough:

80-day cycle trough still ahead

Note that the next large trough is expected at about the same time, and will be a trough of 80-day magnitude. I always find it comforting when alternate analyses provide the same information.

Of course the difference between these analyses will be in the magnitude of the upcoming peak. In the latter analysis it will initially only be confirmed as 80-day magnitude when price drops down through the 40-day VTL. (Note how price sneaked below the VTL last Thursday – that does not negate this analysis, but it is one of the reasons why it is my less favorite)

Finally I sometimes like to change the scaling of a chart so as to remove the impression that just because price is near the top of the chart it will turn down immediately. Even though we are looking ahead to the next move down, we should give the bull some room:

Giving the bull some room

Have a good week and profitable trading!

This post was first published on the Sentient Trader blog.


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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One thought on “Looking Ahead – 4 April 2014

  • SilentOne

    Hi David,

    These markets have been a little unpredictable the last few weeks. I will say that the more speculative areas of the US market are looking very dubious. Specifically US Biotech, the Nasdaq, and the Russell. It seems that a lot of money went into the ES and YM of late but the rest looks ready to start a serious decline. Have a good weekend.

    cheers,

    john