Peaks are complicated

The market has been going up in a fairly straight line since late August, and it looks as if the rise is getting tired and the market is about to turn down. This move down could be a fairly nasty one.

Here is a chart of the S&P 500 index with medium-term cycle phasing indicated:

S&P500 chart

A medium-term chart of the S&P 500

Note how price has risen into the sell zone (red-coloured box), and is projected to fall soon into the green box, reaching a trough (below 1000) towards the end of 2012. The fact that the yellow dotted lines projecting down to the green box have their origin on the last bar of the chart indicates that the software considers it possible that the peak might be occurring right now. If so, then we are in for a pretty big drop in price fairly soon.

You will also notice that according to the phasing on the chart we are now in the third of three 18-month sub-cycles of the longer 54 month cycle. The third sub-cycle is likely to be devastating, particularly considering that the last 54 month cycle trough was a straddled trough (that rather insignificant looking trough in August of 2007). The “plunge” that will occur into this next trough will be severe indeed.

There is another phasing interpretation, which is presented here:

Alternate phasing

An alternate phasing analysis

This phasing analysis positions us fairly late in the second of three 18-month sub-cycles, and is possibly a better analysis. I have shown the 20 week cycle projections, and you will notice that these projections give a little more room to the current rise, but then … again we are looking at a nasty fall, although it is likely that this second 18-month cycle would end up being a straddled trough itself, and the really big fall in prices would then come later.

Whichever phasing analysis turns out to be correct, I think the signs are fairly clear: we are approaching a peak in the market of at least 20-week strength, possibly of 18-month strength.

It is a feature of performing an analysis using Hurst’s cyclic theory that different phasing analyses often imply the same thing, and that is what is happening here. Whether prices are about to fall into a 20-week trough or an 18-month trough, they are about to fall!

Having said that, it is one of the principles of ¬†Hurst’s Cyclic Theory that the troughs of the cycles that influence financial markets are synchronized. It is a side-effect of this principle that¬†peaks are complicated, as Hurst himself put it.

I believe that we are presently in the midst of a complicated peak. Just how complicated that peak turns out to be is where the surprise will lie. That it is a peak seems inevitable.

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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