Possible 18 year Trough and Its Implications 4


David Hickson in his January 23rd blog, presented an analysis showing the March 2009 cycle low being the beginning of a new 9 year cycle—which ended with the comment—what do you think! My first reaction was I wasn’t buying it. Since previous placements claimed that the March 2009 lows was the location of a 6 year cycle trough, with the most recent 54 month trough occurring in October of 2011. Without having access to enough data to run cycle analysis using Sentient Trader, I went to my Prophet Charts and tried to work my way backwards locating prior 6 year cycle lows. This exercise helped me to identify 18 year cycles lows in October of 1974, October of 1990 and March of 2009. I also noticed that where the 6, 9 and 18 year troughs synchronized into a nest of lows the pull backs were pronounced. I likewise noted that in some cases the 6 year troughs are hardly discernable (including the most recent one) but at other times they are quite pronounced—as in October 2002. So instead of disagreeing with his placements, my analysis is suggesting that in March 2009, we had a complete synchronization of nominal troughs from the 18 year on down—which included in this nesting of lows a 6 year (non-nominal) cycle trough. See the chart below.

 

Chart 1

 

 

ES2 Chart 1

 

Above is a Sentient Trader Chart showing what the first charts cyclic analysis looks like from the fall of 2002 to the present. This ST chart shows the placement of the three most recent 6 year troughs in October of 2002, March of 2009 and October of 2014. It also shows the formation of the 9 year cycle trough in March 2009. What I didn’t have was enough data to show was that the March 2009 trough was also a trough of the 18 year cycle—which I’m proposing it was. The above analysis is in agreement with both David Hickson’s October 31, 2014 and his January 23, 2015 postings where he first discussed possible formation of a 6 year trough and the second where he suggested that in March 2009 we had the possible formation of a 9 year trough.

Applying this information to the current situation (see chart below) if my analysis is correct then the current configuration of cycles greater than the 20 day cycle tells us:

  • that five cycles are rising: 18y, 6y, 54m, 18m, 40w
  • that four falling cycles are falling: 9y, 20w, 80d, 40d
  • for a Summation +1 or slightly bullish

 

ES2 Chart 2

 

 

After the 20 week cycle trough forms, the result will be 7 cycles pushing up (18y, 6y, 54m, 18m, 20w, 80d, 40d) and 2 pushing down (9y, 40w) yielding an ULT of +5 which is strongly bullish. Certainly this should be enough strength to provide the cyclic energy for even more new highs being made in the SPX.

Past cyclic history also supports this assumption. Please note on the first chart above, after the formation of the first 6 year trough following an 18 year trough, the bullish action continued for a good while. And in each case price significantly moved up before giving way to either a possible down-trending 54 month cycle and/or a down trending  9 year cycle. However, even after the formation of the 9 year cycle trough the markets made even higher highs before being drug down by the 18 year cycle.

This analysis then provides for an overall bullish outlook on the SPX and US markets in general for some time to come. This analysis also seems to be in agreement with the various US economic and corporate earnings reports that have been coming out over the past year.

Respectfully submitted,

David Walling

Mahomet, Illinois


About David Walling

I've been an active trader since 2007. I've received formal training in technical analysis through Investools--a division of TD Ameritrade. I mostly trade very liquid ETFs--both the ETFs themselves and their options. I was exposed to Hurst's cycle analysis a little over three years ago by a gentleman named Steve Miller from Chicago, Illinois. A short while later I found Sentient Trader and have been using the software off and on for 2.5 years. In my non-trading life I work as a training program coordinator and as a management analyst.


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4 thoughts on “Possible 18 year Trough and Its Implications

  • SilentOne

    Hi David,
    There seem to be a lot of Davids in the Hurst world. My first thought is that I strongly believe in harmonics (ie. 2:1 vs 3:1) and the relationship between various cycle periods. I’m not keen on a 4 yr, 6 yr, 9yr and 18 yr cycles and any discussion that involves them acting together. In my opinion, it is not true to Hurst’s work and personally I just can’t get my mind wrapped around it.
    I could be convinced that Hurst’s nominal cycles of 4 yr, 9 yr, and 18 yr run much shorter these days for stock markets. In fact I have been playing with nominal models that use roughly 13 months, 39 months, 6.5 yrs, and 13 years. You would be surprised at the results if you were to input this as Sentient’s nominal model and then run it say from just prior to the 1974.
    I will say that I think 2009 was a 9 year low (actual cycle running 6.5 years?) and very likely an 18 year low. What bothers me is that we could see an early 9 year cycle low (if 2009 was an important generational low) which would create a lot of confusion for cyclic analysis going forward. Equally, we may have in front of us a nested low for a number of very large cycles. There is no read on it either way, and certainly there is nothing really bearish in these markets for the time being.
    I would suggest that you look at William Randall’s bandpass filter work and try to extract the nominal cycle periods from his work. Use that as a nominal model for Sentient’s reference and see what you get. I find Sentient much more powerful when you try to lead it in its analysis. I don’t know if you have seen the movie “Imitation Game”, but I think this is the perfect example of what I am referring too. Turing’s computer needed the decoded key words “Heil Hitler” in every message to decode the daily message. I think that using Hurst’s nominal model as taught in his course can mislead Sentient’s analysis of today’s markets. TWT. GLGT.
    cheers,
    john

  • SpiderGuy

    Hi,
    My analysis indicates that the upcoming low you’re expecting will be of the 6.5year cycle variety not in Feb as Sentient says, but in April. David has mentioned in earlier posts about a 6.5yr beat, which breaks Hurst’s Nominal model but seems to fit the current market narrative better. My work indicates that this cycle will bottom somewhere around the 21st of May 2015. The 9 year cycle topped in sync with the 6.5 year cycle about the 9th of Feb 2012. The 9 year cycle is not due to bottom until about 2018.

    The next series of cycles to top are the 40wk and all the other cycles with period less than the 40 week cycle i.e. the 20wk, 80day, 40day, 20day, 10day and 5 day. My model currently indicates a top around the 27th of Feb 2015 (in a few days time) and a 40 wk cycle bottom around the 21st of May 2015.

    Happy trading!

    • SilentOne

      Hi Spiderguy,
      I like the possibility of a top here this week or into early next week and a 40 week low due April/May. What I’m not sure about is the 40 week cycle after that. But perhaps this will be the way to play it. That is, trade the coming 40 week cycles from their lows. I am tempted on some short setups but this has been a real lottery in the last year.
      cheers,
      john