We have some exciting developments in the pipeline at Sentient Trader, and as a part of that our weekly analysis of the markets has moved to a new location on our site. Some of our readers were treated to an omnibus of past issues this week when we made the move, but apart from that unexpected treat the move will not affect you in any way. Except that we have become a great deal more interactive: we have a new (and functioning) comment system so that you can get involved in the conversation. I look forward to hearing your thoughts about what is happening in the markets.
We are also now extraordinarily social! You can like us on Facebook, follow us on Twitter, connect with us on LinkedIn, subscribe to our YouTube channel, or do whatever it is that one does on Google + (I’m a bit of a dinosaur when it comes to all this social media stuff). Contribute to the Hurst renaissance by heading over to our site and doing one (or all) of those things, because that helps us to spread the word about how to truly understand financial markets.
A few weeks ago I introduced the concept of cycles in relative as opposed to absolute value, and this week as a potential trough formed in the US Dollar, the relative value of the US markets also experienced a turn up even though those markets were fairly flat. We are expecting a peak in the US markets, but when a trough in relative value occurs the situation becomes complex. Complexity might increase the challenge of performing an analysis, but it certainly doesn’t make the task impossible. It simply makes it more fascinating.
There are two analyses that we have been tracking in the US markets. The first has the 80-day cycle trough positioned on 25 July 2012:
Notice the very neat nests-of-lows (the stacks of future trough positions). This is often an indication of a good analysis, and it certainly makes for a more “beautiful picture”. The other analysis has the 80-day cycle trough positioned in late August (or early September, it makes little difference):
In this analysis the nests-of-lows are not nearly so well organized, and there is a clear gap in the 18-month nest-of-lows in January 2013 – there is no grey “synchronous box” connecting the 80-day and 20-week future trough positions. This doesn’t negate this analysis, but it does make it less likely than the first in my opinion.
What is the difference between these two analyses? The first analysis implies that we are expecting the trough of the 20-week cycle to form in the next week or so, whereas the second analysis expects a trough of only 40-day magnitude to form within that time-frame.
In case you’re saying “wait a minute – what do you mean a 20-week cycle trough, or 40-day cycle trough? Last week you were talking about a peak!” Let me remind you of the fundamental principle of Hurst’s cyclic analysis: multiple cycles influence the price movement of financial markets. I am still expecting a peak in the US markets, but that doesn’t mean that we ignore all the other cycles. The cycles never stop moving … in the process of forming this peak the cycles are all ticking along, and troughs will keep forming. The S&P 500 will bounce out of this trough (as all markets bounce out of all their cycle troughs), but in the longer term the markets are turning down.
Here is an updated chart of the value of the S&P 500 in terms of Gold:
The cycle shapes are much clearer in this chart which is why I always keep my eye on these “relative value” charts. The value of the S&P 500 in terms of Gold has already peaked, and we are now clearly on the bearish side of the 18-month cycle. The relative value will bounce up from an 80-day cycle trough in the short term, before subsiding to lower levels.
There is not much to add with respect to the Nasdaq, which achieved slightly higher levels this week, on waning strength. We are standing by for the fall into a 20-week cycle trough.
Last week we were expecting the Euro to fall from a peak, and it did so this week. It is still too early to tell whether we should invert this analysis, but once the 80-day cycle trough has formed we will take a look at the cycle shape and make a decision about that.
Gold reached even higher this week towards the 40-week cycle peak.
Hurst suggested that the cycles that move the price of gold have wavelengths one-and-a-half times as long as the wavelengths of the cycles found in the stock market. That makes the time ripe for the 40-week cycle peak about now, as can be seen from the bar counts on the chart.
30 Year US Bonds
Bonds are fast becoming my favorite market. When I suggest they are peaking they oblige by turning down, and I forecast they will turn up, they do!
Of course this is because the 40-day cycle is particularly evident at the moment. This dominance of a single cycle never lasts very long, but I’ll enjoy it while it does!
I warned last week that the longer cycles were turning down, and that Oil was vulnerable to a bearish move. Indeed it was:
The speed of that move down makes it likely that the 80-day trough is forming now, as shown in the analysis on the chart.
US Dollar Index
We have been expecting the trough of the 20-week cycle in the US Dollar, and a very viable trough formed this week:
The other analysis option, which has the 20-week cycle trough in June is still possible. That would make the trough formed last Friday a trough of 80-day magnitude instead of 20-week. As price bounces out of this trough I will be watching the strength of the move carefully to determine whether it is likely of 80-day or 20-week strength.
That’s it for this week. Don’t forget to like us (if you do), or connect to us, or do whatever those Google + people do. Join our quest to spread the power of the knowledge of Hurst’s Cyclic Principles around the world.