The 40-Day Trough 6


Performing a Hurst analysis is all about identifying the positions of cycle troughs in the price movement. But when the market is moving strongly, as it is at the moment, it can be very difficult to identify any troughs at all as can be seen in this chart of the S&P 500:

The S&P 500 has hardly paused

The analysis shows that we are expecting a 40-day cycle trough to form, with the nest-of-lows for that trough centered in next week. However there has been scant evidence of the shorter cycle troughs forming since the mid-October trough, and so that nest-of-lows is very much an estimate.

And it is important to remember that when the underlying trend is bullish (as it is) we expect troughs to form early. Is it possible that the 40-day cycle trough has already formed?

I find it very useful to look at other markets, particularly markets in other countries to help to clarify the situation. Here is the DAX:

The DAX shows a clear 40-day trough

A very clear trough formed here, right above the nest-of-lows for the 40-day cycle trough. I don’t expect all markets to form the same troughs at the same time, but Hurst’s Principle of Commonality leads us to expect troughs to form at similar times. The analysis of the DAX implies that the 40-day cycle trough has already occurred.

Let me play Devil’s Advocate for a moment. As a South African I always keep an eye on the Johannesburg Stock Exchange. Here is the JSE’s All Share Index (includes data up to Thursday 20 November):

The JSE is moving down to the trough now

The JSE is clearly still in the process of forming a trough, but my experience with the South African market is that the shorter cycle troughs are often displaced by several days, whereas the European and US markets tend to be more in sync with one another.

I find it very interesting to watch the cycles unfolding in markets around the world. Often questions in one market can be answered from another market on the other side of the world.

UPDATE: Here is an updated view of the JSE All Share Index, which includes Friday’s move. Looks like the 40-day cycle trough has come in!

Update for the ALSI

 

(Sorry about the different color scheme – this is taken from my computer at home)

As a matter of interest the way in which the South African market suddenly played “catch-up” is something that I have often profited from. Trading an emerging market can be frustrating as one deals with the greater volatility, and sometimes inexplicable contrary movement (relative to the US and European markets). But when the market “catches up” with the bigger markets is often does so with a vengeance.


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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6 thoughts on “The 40-Day Trough

    • David Hickson Post author

      Hi Huub. We expect troughs to form early relative to the average wavelength of that cycle (sometimes referred to as the nominal length), because of the time translation effect of the longer cycles. And so I expected the 40-day cycle trough to occur earlier than the average 34.1 days.

      • huub de groot

        Dear David,

        From a theoretical perspective timing should be more accurate if early and late is relative to peaks and troughs in the FLD.

        For a neutral trend, the troughs coincide with peaks in the FLD.

        Thus, in an uptrend the through can never be later than the next peak in the FLD, while in a downtrend the trough can never be earlier than the previous peak in the FLD.

        Similar with peaks.

        Then the FLD provides a robust experimental constrained, a demarcation with respect to timing that is largely unbiased.

        With regards,

        Huub

          • huub de groot

            Hi William,

            From a theoretical viewpoint the FLD delivers basically four events to help improving the accuracy of timing in the data. The trough, the up crossing, the top and the down crossing.

            Today I came across this analysis for AUDUSD on the 18Y cycle, which I think is neat. Starting in 2001, with the trough there is the up crossing in sep 2004 where the MCP is also a trough of the 54mo, then the bottom in the FLD is marked by the 9y trough, while the uptrend is clear as the overall peak in Oct 2011 is right shifted relative to the FLD bottom.

            Then the down crossing coincides with an MCP formed early 2014 or being formed around now with a 54 mo trough.

            The starting point of the analysis is 1981-1-17.

            Best,

            Huub