The Magnitude of the Peak – 6 April 2013


Hurst’s Principle of Synchronicity tells us that the troughs of cycles (in stock markets) are synchronized – which is why we present the results of a cyclic analysis with the diamond trough markers at the foot of a chart, but don’t mark the positions of the peaks which are not synchronized.

A result of the fact that troughs are synchronized and peaks are not is that it can be very tricky determining the magnitude of a peak. I have been expecting a peak of at least 18-month magnitude to form in the stock markets around the world, and those peaks have been forming, with the US markets holding out the longest. A peak formed this week in the US markets, and the question we need to answer now is what magnitude is that peak?

Although markets around the world do not exhibit identical cyclic pictures, they are very closely related (Hurst’s Principle of Commonality), and it is useful to compare markets, particularly when considering the complex issue of the magnitude of a peak. Let’s take a look at the European markets, and determine the magnitude of the peak that has formed there. Here is the German DAX:

The 20-week cycle

I have drawn the “M-shape” of the current 20-week cycle onto the chart, showing that the peak of 15 March 2013 was of at least 20-week magnitude. Could it have been of greater magnitude? I think so:

The 40-week cycle

Here is the “M-shape” of the 40-week cycle, showing that the 15 March 2013 peak was very likely of 40-week magnitude. Could it have been an even more important peak?

The long term picture in the DAX

This chart shows that the peak was very probably of 18-month magnitude. The DAX is one of the stronger european markets. What about other markets in Europe? Here is the Euro-Stoxx index:

The 40-week cycle for European markets

Here too the peak looks very likely to be a peak of 18-month magnitude. It is interesting to note that the peak occurred at the end of January in this index. The process of forming a peak in the markets is a complex one, and when the magnitude of a peak is large it will often be spread over as much as one quearter of the cycle wavelength. This is in contrast to the way in which troughs usually occur at very nearly the same time in all markets: the trough of mid-November 2012 provides a good example.

Finally here is a chart of London’s FTSE index:

The 40-week cycle in the FTSE

The peak occurred on 14 March 2013, and was very probably a peak of 18-month magnitude. Let’s consider the magnitude of the peak that formed this week in the US markets.

S&P 500

The S&P 500 formed a peak on Tuesday 2 April 2013. This peak was of at least 40-day magnitude as can be seen on this chart: 

The 40-day cycle

It is likely that the peak was of much greater magnitude, particularly when one considers what is happening in the rest of the world. Here is a chart showing the 40-week cycle which has been playing out since mid-November 2012. It is very possible that the 2 April peak was a peak of 40-week magnitude:

The 40-week cycle

In the above chart the 20-week cycle from mid-November 2012 to the end of February was a very short 101 days. The alternate analysis that I have been presenting here considers that 101 days to be a combination of an 80-day and a 40-day cycle as shown here:

A valid alternative

That implies that the 2 April peak was of 20-week magnitude. The formation of a 20-week cycle trough soon would cause a bounce, but if the 2 April peak is not surpassed, it would be a peak of 40-week magnitude.

Nasdaq

The Nasdaq is in a very similar position with the peak this week being of at least 40-day magnitude, but very possibly of greater (40-week) magnitude. 

A 40-week peak?

Euro/US Dollar

The Euro bounced this week out of the 40-week cycle trough that we were expecting. The fact that the Euro-US Dollar pair has experienced a turn of 40-week magnitude adds further weight to the argument that the turn in the US markets was likely of greater magnitude than 40-days. 

Bouncing out of the 40-week cycle trough

Gold

I analyze Gold “upside down” and consider the peaks to be synchronized (as discussed before in this blog). I have been expecting Gold to muster a rally into the 40-week cycle peak, and very possibly the trough of the 40-week cycle formed this week, as shown here: 

The second trough of the W-shape

30 Year US Bonds

I suggested last week that Bonds would move up, and indeed they did! There are two possibilities here – that Bonds are now forming the 40-week cycle peak:

Completing the 40-week cycle

 Or it is still possible that the 40-week cycle peak was a straddled peak in late February:

A straddled 40-week peak

The former analysis warns that bonds will form a peak and then drop away sharply, and so that is the analysis that trading decisions should be based upon in the short term.

Crude Oil

Last week I pointed out that Crude Oil had risen to the level of the 40-week VTL. Price was repelled back downwards by the VTL with the result that Crude Oil has not managed to break out of the triangle formed by the two VTL’s. The 18-month (at least) cycle trough of early March is still a valid phasing, and we would expect the 40-day cycle trough to form soon. If price drops below the level of the March trough then we would look for the formation of a slightly deeper 18-month cycle trough.

Trapped between VTL's

US Dollar Index

The US Dollar is forming the 80-day cycle trough, which is so far proving to be a fairly subtle affair. The 80-day cycle projections on this chart show that the Dollar is expected to rise further before forming the 20-week cycle peak. 

Forming a subtle 80-day cycle trough

Identifying the magnitude of a peak is fairly complex, but the weight of the evidence is clearly warning that this peak could be an important one, which would mean that we are unlikely to see higher prices for some time.

Have a great week, and 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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