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