Moving on to the next cycle 4


I am so accustomed to the cycle trader’s approach of always looking ahead to the next event that I sometimes forget to “finish the story” and tie up the loose ends.

For the past few months I have been writing about when to expect the 40-week cycle trough. That trough has now occurred, almost exactly on schedule. Before we think about what comes next let me take a moment to illustrate the “power of cycles”, the insight which a cycle analysis can provide.

On May 22, 2015 I published this chart as one of two possibilities for when to expect the 40-week cycle trough:

Mid July trough

Here is an updated analysis that shows the accuracy of that forecast:

Right on schedule

Perhaps it was a few days early, but when you’re talking about a 40-week cycle which averages 274 days I think 5 or 6 days can be forgiven. The question is, as always, what next?

It is a fact that when prices bounce out of a cycle trough the move usually starts off very symmetrical. In other words the rise out of the trough matches the plunge into the trough. We can see the nearly perfect symmetry of the past four weeks on this chart where I have simply copied and mirrored the price action:

Perfect symmetry

The pale bars are the mirrored price from before the trough. Notice how we are at exactly the same level we were at an equal number of days before the trough as we are now after it.

Eventually the symmetry will break down, and that break down is dependent upon the underlying trend. If the underlying trend is neutral then the symmetry will last for a long time. If it is bullish then the symmetry will break down to the upside (in other words new price action will be higher than the reflected price). And if the underlying trend is bearish then the symmetry will break down to the downside.

Underlying trend has been clearly bullish for some time, but I have been observing bearish signs appearing recently, and it will be interesting to see whether the underlying trend has been reduced to a neutral state yet, or even whether it has started to turn to bearish. The break down of symmetry will provide us with this vital information.

As a matter of interest if underlying trend is now neutral then this reflected price action shows us what to expect:

Assuming neutral underlying trend

The concept of symmetrical price action is an interesting by-product of Hurst’s Cyclic Principles, and a very useful one in my opinion. Let me know where you think the next cycle is going to take us.

 

 


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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4 thoughts on “Moving on to the next cycle

  • David@tradinghurst.com

    David,

    I have been looking at the Shanghai composite for a bit of fun and managed to get some data from Quandl via Yahoo back to 1998. I was struck by the cyclicity since 2009 with a 54 month cycle low apparent in July 2013. I wasn’t expecting that a market reportedly ‘controlled’ by the state could exhibit such commonality with worldwide indices. Indeed perhaps this chart can help us with the US indices and the possible placement of the 54 month cycle low so hidden due to bullish underlying trend. This phasing expects a 9 year low in mid 2017…

    • David Hickson Post author

      That is fascinating David. It does look as if it clarifies the 54-month trough position. But it also looks like a peak-synchronized price movement to me, with rounded and clustered troughs and sharp isolated peaks. Have you tried a peak analysis on that data?

  • karni

    Hmmmm now October 2014 as 9 month cycle low and the current low(when we see the low:) as 18 month cycle low looks much better.
    What do you think?

    • David Hickson Post author

      Yes it does look better, but I will be interested to see how price bounces out of the trough … if the bounce is very weak then we might be seeing a very bearish picture unfolding, with the analysis remaining as I described in this post, but with the underlying trend having effectively collapsed. It might be that those “bearish cracks” that I’ve been seeing over the last few months have finally weakened the dam wall so much that the bullish wall has collapsed and the flood has started.