On Breaching VTL’s and Repeating Patterns 5


I recorded a Hurst Trading Room podcast this week about the fact that the S&P 500 has breached the 20-week VTL. (It was in fact a record-breaking podcast  – my shortest ever podcast at a mere 15 minutes!)

This breaching of the VTL is true for both of the most likely positions for the 20-week cycle trough. Here is the analysis with the trough in March 2015:

20-week trough in March 2015

And here is the analysis with an early 20-week cycle trough in February 2015 (as discussed here):

An early 20-week trough

In both cases the 20-week VTL has been breached to the downside, which means in theory that we have seen the peak of the current 40-week cycle. And so profits are likely to made on the short side from now until the 40-week cycle trough.

There is a third possible position for the 20-week cycle trough of course, which would mean that the 20-week VTL has not been breached at all. That position is in the first week of April 2015, either at the low of 1 April, or over the Easter weekend (3-6 April).

Positioning the 20-week cycle trough there would make a big difference in terms of what we expect to happen in the markets, and so it is an important consideration. I would like to present an argument against positioning the 20-week trough there, which is unorthodox but nevertheless compelling. I hope you find it interesting.

My argument against positioning the 20-week cycle trough in early April 2015 has to do with a pattern that has repeated very accurately in the market recently. Here is the first iteration of that pattern:

The pattern

I’m not sure what to call this pattern, but the features are a good strong move up, which tapers out as it reaches the peak, and then a strong move down to form a clear and simple up-then-down cycle shape (probably the 80-day cycle). This was followed by a clear triangle shape for the next cycle (also 80-days if we accept that the pattern completes the 20-week cycle).

In other words it is a simple cycle followed a “triangle” cycle.

The interesting thing is that this pattern repeated itself straight after the first iteration:

The repeat

Exactly the same pattern: a simple cycle, followed by a “triangle” cycle, which I would argue are both 40-day cycles.

I have put both patterns together in this image, and stretched them to fit into the same time-frame:

The patterns compared

The point of identifying the repeating pattern is that we can make an assumption: if one pattern played out over two cycles, then the other most likely did as well. They were of course two different cycles: two 80-day cycles in the first pattern, and two 40-day cycles in the repeat pattern.

If this assumption is true then the trough in the first week of April 2015 is most probably the trough of the 80-day cycle. This gives us a clear picture of what to expect next:

A 40-week trough expected mid-year

A move down to an early 40-week cycle trough in June this year. We will get some ups and downs on the way of course, the most notable of which will be the 40-day cycle trough in early May.

On the other hand, if these repeating patterns turn out to be a lot of hot air, then this is what we expect:

A subtly different outcome

I will be watching the move down, and particularly the positions of the troughs that form on the way down with great interest.

What do you think of the “repeating patterns” idea? Is it valid, or just coincidence?


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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5 thoughts on “On Breaching VTL’s and Repeating Patterns

  • vito

    Hi david, in scheme of things the way I see it and have been watching it quite closely , is the big combo pattern which is in Elliot terms is diagonal pattern !! For those who are not familiar with the term , Diagonal patterns appear at the end of rallies. An sure enough this has been a huge rally since 2009, quite unexpected in magnitude yet it was for real. i suppose that s what Ron Elliot was pointing out on extreme optimism in B waves where we may have witnessed one!

    The implications are , if indeed is a diagonal termination pattern than we expect the 20 week , 40 week , 18 month VTL s to be broken to the down side one after the other one indicating longer term tops are in .And ofcourse the first breach of the shorter term Vtl is important one I also noticed that SP quite often respect the VTL s and find support I suppose these to be watched closely where shorter term troughs likely to happen and we may use these as part evidence in building our case in a long waited bearish move.

    After all I suppose it is a right quote in saying “peaks dont appear over night it is a process and takes time !”

    Regards to all

    Vito

  • James Freemon

    Tracking the DIA, SPY, QQQ, and IWM for the time period beginning Oct ’14 through April 17 shows an ominous big picture ascending wedge, accompanied with declining 10 day average volume in all 4 vehicles. The downside breakout of the wedge Friday might be the beginning of the end for this bull market.

  • Gary Becker

    Hello,

    I have a reservation about the 20 VTL. It seems using for origin for the VTL the last price low before the price spike on 10/15/2014 should at list be considered.

    Then it is possible the 20 w cycle top still at hand and sometime in May?.

    Thank you in advance for your comment.

    Regards

    Gary

  • David Hickson Post author

    Thank you for the comments. I’ve been away from the computer recently, sorry about the late reply.
    Gary it is certainly possible that the peak of the 40-week still lies ahead of us. The big problem with VTL’s is that they are very dependent on the placing of the troughs. Personally I prefer the obvious placement of a trough at the low price, even if it is a spike down, but there are many different approaches.

  • Joe VanDerveer

    They are fractals leading up to a change in trend. A vibration speeding up to the reverse. Like an earthquake building pressure before the release. I do believe we are heading down, some of my calculations equal yours. One of these reasons we did not correct more in March or mid April would be the current cycles making a top around late April and early May. They are just about over so the selling should start picking up speed. Cycles and troughs are not always so evident such as the exact high or low. There are literally dozens of different cycles or frequencies in play at any one time. That’s why you must use chart patterns, trendlines, candlesticks, etc. with Hurst. Also don’t forget about the daily and weekly macd, they are not both down yet, but should be shortly. Check out the nice monthly reversal pattern, Inverted hammer on the Comp, oh and the monthly macd on the laggard DJIA, it only turns down once every 7 years lately. Hmmm