Stock Market Weakness Ahead – 17 January 2014 14


Stock markets around the world have been reaching up to new highs recently, but as they continue to reach upwards I am beginning to see some cracks appear, and I suspect that we are going to witness some weakness in these markets in the weeks ahead. In this post I would like to highlight the worrying cracks that are starting to develop.

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We announced yesterday that we are launching our new Hurst Signals service next week, and in honor of that grand occasion I am going to use charts from Hurst Signals to illustrate my points. Hurst Signals are the result of many months of hard work. It is very exciting to be able to deliver quality Hurst analysis, and the resultant trading opportunities to a wider audience. If you haven’t yet seen the video which introduces Hurst Signals to the world then make sure you take a look and add your name to the list so that you are informed of all the details.

In all of these charts the purple line is the 20-day FLD (future line of demarcation). The letters A – H represent the reliable sequence of interactions that occur between price and the FLD within an 80-day cycle.

The signs of impending weakness are seen in individual markets, and also in a comparison of markets from around the world. Let’s start with a look at the S&P 500:

S&P 500 struggling to get clear of the FLD

The next trading opportunity here is a short trade, but that is not what I mean by a sign of weakness. These are the signs of weakness here:

  • The A-category interaction occurred at a price of 1800, and created a target for the upwards move of 1846. The high of  31 December 2013 reached up to 1843, which means the target wasn’t quite reached. Usually A-category interactions exceed their targets, and so it would appear that bullish momentum is waning
  • At the B-category interaction between price and the FLD, price crossed down below the FLD. Usually price finds support at the FLD at this interaction, and crossing below it indicates increasing selling pressure.
  • Finally the C-category interaction has (so far) resulted in a very lackluster move up, indicating a definite turn down in the pressure of the longer cycles that have been driving the market up so strongly. Of course the market might still surge upwards and provide us with a better move, but it is worrying that it is struggling so hard. Also interesting to note that the target of the A-category was very nearly achieved at Wednesday’s high of 1845.25.

Now let’s compare this to the Dow Jones Industrial Average:

The DJIA struggling on all its upwards moves

The picture here is similar but subtly different.

  • Unlike the S&P 500 the target of the A-category interaction was fulfilled and exceeded. This might be a sign of strength, but it looks very much like a “last gasp” show of strength, when we look at what happened after that.
  • The B-category interaction looks stronger than the S&P 500 as well with price finding support at the FLD, but that is where all the strength in the DJIA collapsed.
  • The C-category interaction failed to even break above the FLD in a dismal display of growing weakness. One could argue that the C interaction is only occurring now, but I would favor the classification shown above which has the D-category interaction on Monday’s strong move down.
  • If that D-category interaction is correctly identified then we would expect an E-category cross above the FLD next. The way in which the FLD has provided resistance over the past two days is yet another sign of weakness.

What about the Nasdaq, which has been so much stronger recently?

The Nasdaq looking not much better

Indeed the Nasdaq does look a bit stronger, but it is an interesting mix of the Dow and the S&P which doesn’t leave me feeling much more optimistic.

  • The A-category interaction managed to (only just) achieve its target of 3586 before a disastrously bearish B-category interaction during which price dropped well below the supporting hold of the FLD
  • The C-category interaction experienced the formation of a lower trough (on Monday) while price was tracking along the FLD, a very worrying sign.
  • When price did break free of the FLD it looked as if though perhaps some strength was returning to the move, but the base of that move looks very weak to me, and I wouldn’t be surprised if it is a short-lived burst upwards.

Hurst Signals also cover four European stock indices, the FTSE-100, CAC-40, DAX and EURO-50. I find European indices provide an interesting counterpoint to the US indices, and so let’s take a look at one of them, the FTSE-100:

Markets across the ocean look stronger

Now this chart looks much better! There are none of the signs of weakness that I have been pointing out in the US markets. Note how the A-interaction exceeded its target, price tracked along the FLD beautifully between the B and C interactions, and the C-interaction has resulted in a good strong move upwards. Of course the next interaction is a cross below the FLD, and so we do expect this market to move down soon, but we aren’t seeing those same signs of weakness. Perhaps the European markets are going to lead the way higher over the next while?

I hate to spoil the optimism one feels looking at that chart, but it is a good idea to step back and view the chart in a slightly wider context. Here is a look at the past three months or so in the FTSE:

A much weaker long-term picture

Oh dear. The recent price action looks good, but set in this context we can several other signs of weakness:

  • The previous 80-day cycle had a very mixed shape, tending more towards bearish.
  • The move up since mid-December looks good on its own, but we see now that all it has achieved is to bring price up to the levels of late October last year. Price might push higher of course, but the chances of a fairly large double peak are increasing.

For the sake of comparison here is the same time period in the DJIA:

A more bullish picture

This looks much more bullish, with good bullish cycle shapes, but the cracks are beginning to appear in this bull move, which is why I suspect we are going to see increasing stock market weakness ahead.

Do please let me know what your thoughts are. Are you seeing signs of weakness, or do you think the bull is still growing in strength?

And if you aren’t getting our emails about Hurst Signals, make sure you add your name to the list. They will bring you regular trading opportunities without the need to install any software or access data for the markets you trade. And if you already have the best Hurst software around, we are offering a great discount on Hurst Signals to Sentient Trader users.

I wish you profitable trading.


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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14 thoughts on “Stock Market Weakness Ahead – 17 January 2014

  • Richard

    I hope your teaching videos get more detailed about what each of the catagories A,B,C,D E etc. actually mean. And if those catagories represent a point on the charts then maybe a little arrow pointing to the exact location should be added. Your description of weakness in a market is way too vague to me. I need a lot more specific detail in order to understand. Thanks.
    Richard

    • David Hickson Post author

      Hi Richard. The Hurst Signals training course has a great deal of detail in well over 40 videos. As with any effective trading strategy one has to learn how to apply it, and I don’t think you will be disappointed by the level of detail. On the other hand this blog is not meant as a teaching device really, simply somewhere for me to air my views on the markets.

  • Georges Barbey

    Thanks David,
    this confirms my own analysis, but there is one more interesting point, as for me, the question might also be “when will we reach a peak?”.
    If you run ST on detecting peaks, then you come to a very interesting conclusion: Growth of the indices is slowing down until the ultimate thrust in February, and then a market correction should follow until mid- or end-April.
    Let us see what happens, but I increasingly like to run ST on troughs and peaks parallely as it gives interesting clues, additionally to the phase analysis.
    Congratulations for your software, I experience so much pleasure running it!
    Georges

    • David Hickson Post author

      I am delighted to hear that you are enjoying the software Georges. The idea of running both a trough and peak analysis on any instrument is a very interesting one, and something I have done myself for some time. The question is indeed “when will the peak form?”, but peaks can be very hard to pin-point. Your analysis sounds very viable, let’s see what happens!

  • BobP

    David, When I use the SPX chart I set up for the FLD course that starts in 2005 I get the same 80d trough you do on 12/15 which would make the next trade likely a D trade. On my long term daily SPX and SPY starting in 1995 my last 80d trough is on Nov. 7 so I am looking for a new 80d trough next week, most likely, and then an A trade coming out of that trough. Any thoughts on the difference?

    • David Hickson Post author

      Hi Bob. There is a possible analysis in the S&P 500 that has a 20-week trough on 7 November, and the mid-December trough is a 40-day cycle trough, which sounds like the analysis you are seeing. I like to keep an eye on all possible analyses, and this is one of them, however in my opinion it is a less likely analysis than the one with an 80-day cycle trough in mid-December. There are three main reasons: firstly the bounce out of the mid-December trough was stronger than the bounce out of the 7 November trough; secondly the FLD sequence doesn’t look as good or “as expected”; and finally other markets clearly experienced a more prominent trough in mid-December, and it is likely that the S&P 500 (due to commonality) was also experiencing a cycle trough of greater magnitude than 40-days in mid-December.

  • homaa

    Thanks David for the analysis. I agree that there are weaknesses. Also for the NQ I take it from your analysis that the 20 day trough is roughly coinciding with the peak in the 20-day FLD, indicating neutral behaviour.

  • vito

    Hi David,
    Any suggestions to get hold of Hursts ‘ original course. I could not find it on the net. I have watched your videos going back 2009 when your baby sentient code was little :) i valued them very much back then!.But i still wish to study the whole course myself if I could or your suggestions will be much appreciated. I actually wouldnt mind to get hold of the set of videos that you produced back in 2008 -2009 era either if I could.Thanks in advance.
    Best
    V

    • David Hickson Post author

      Hi Vito. Sadly Traders Press who published the Cycles Course no longer exist, and so the only way that you can get hold of a copy is to buy a second-hand one from someone willing to part with it. Those old videos have been mostly repackaged and updated, and are now looking a bit more modern in the Hurst Cycles Trading Academy.

  • Arthur

    Hi David, I notice the YM chart shows an 18 month trough last October. That would make the last 18 month cycle only 11 months long. Is this correct or is the next 18 month trough still due in Feb/March as in your last stock market analysis?

    Regards,

    Arthur.

    • David Hickson Post author

      Hi Arthur. Because we offer Hurst Signals for several US indices we have taken the approach of showing slightly different analyses between the different instruments. In that way alternate analyses can be compared. Of course we show the analysis that we think most likely for the particular instrument. The YM analysis has an 18-month cycle trough in October 2011 and one in October 2013, making it a long cycle of two years. In the S&P 500 however the troughs are October 2011 and July 2013. These analyses imply that the Feb/March trough will be of 20-week or 40-week magnitude as opposed to 18-months. Using the FLD trading strategy so long as the magnitude is greater than 80-days it makes little difference actually, affecting only the underlying trend of the trade.