The Cycle Jump

Hurst’s Cycle Tools (the VTL and FLD) are very useful as analysis tools, helping us know when a trough or peak has formed in the market. And they are useful for trading, by providing entry and exit levels. But they are also clearly levels that have some significance to the market. By this I mean that price seems to “react” to both the VTL and FLD, often finding support or resistance at the levels of these lines.

You probably know that I like to trade the interaction between price and the FLD, because I find it the most reliable. But there is another behavior that I have observed many times, which I call the “Cycle Jump” (just because I like to give things names).

The Cycle Jump is the move that takes place between a VTL line and the FLD line. It is usually a strong move and only occurs when the VTL line is closer to price than the FLD (which is usually the case, but not always).

The S&P 500 has provided a perfect example of the Cycle Jump over the past few weeks:

The Cycle Jump is that strong move from the 18-month VTL (once price finally let go) to the 18-month FLD. Price has found support at the level of the FLD, and is probably forming the 40-week trough here. Of course whether price finds support at the FLD or slices through it is a question of where we are in the sequence of price and FLD interactions.

Last week I suggested an alternative position for the 18-month cycle, and the obvious question is whether that affects this Cycle Jump. It turns out that it makes very little difference where we place the 18-month cycle trough. Here is the option with the trough in February 2014:

And with the trough in April 2014:

And the possibility of October 2013:

That last option raises an interesting question: Is it possible that the S&P 500 is now forming an 18-month cycle trough? In my opinion it is unlikely, but I’d love to hear what you think. It does require that we accept that the cycles are currently running much shorter than the nominal model defined by Hurst in his Cycles Course, a model which has served me very well for many years.

Finally I thought it would be interesting to look ahead and see what we should expect:

On this chart I have marked the expected positions of the next 18-month cycle trough and the next 54-month cycle trough, according to the “nest-of-lows” future trough markers, and also the guideline that we should expect a trough in a cycle when the FLD forms a peak. That latter guideline is just that – a suggestion, and often an unreliable one. Sometimes it is remarkably accurate, but at other times it is no good at all, particularly when the cycles have been distorted – and that they certainly have been recently.

I expect a bounce now, out of a 40-week cycle trough (thanks John!), and then I’ll be looking for an 18-month cycle trough April – August next year (probably in the later end of that range), and of course the big 4 & 1/2 year cycle trough in late 2016.

Along the way I expect we’ll see several “Cycle Jumps”.