The Usefulness of Commonality – 25 May 2013


Two quick reminders:

  • The special offer for the launch of our Hurst Signals (2) service ends this week. The new service has been created in response to the great feedback we received in answer to the question “what do you want from a Hurst service?”. It presents an analysis overview, and projections for three cycles in 18 instruments, updated several times every day.
  • The Traders World Online Expo starts this week. 28 speakers over the next 6 weeks, it is bound to be a rewarding experience. I present a talk in the first week, in which I discuss ways of actually understanding your Hurst analysis. It is all very well performing an analysis, but what should you do with it?

One of the eight principles which define Hurst’s approach to the financial markets is the Principle of Commonality, which states simply that different markets move with a great deal in common. At first it seems a rather trivial principle, and tends to get overlooked in favor of the more interesting principles (such as harmonicity and synchronicity). ┬áBut it is this principle that outshines all the others when the markets are behaving in a manner which makes an analysis difficult. And that is the usefulness of the principle of commonality: it helps us to understand what the cycles are doing, even when the cycles themselves are being distorted beyond recognition by longer cycles or fundamental factors, which is what is happening at the moment in stock markets around the world.

S&P 500

For several weeks I have been presenting this analysis in the S&P 500, which positions the 20-week cycle trough in mid-April. The move since then can hardly be described as cyclical, but we know that Hurst cycles never disappear, they have simply been overwhelmed by a more powerful longer cycle (or as mentioned last week, possibly caught up in a pseudo-trend). The market is now forming the 40-day cycle trough – which we know despite the lack of cyclic evidence because of commonality – the evidence of what the cycles are doing in other markets.

A 40-day cycle trough due now

Note how price has come down to the 20-day FLD, and has found some temporary support there. As price moves down to the 40-day cycle trough we expect it to break down below the FLD, but if it fails to do this we will know that the bullish forces which have caused the recent upwards move are still going strong.

Nasdaq

The Nasdaq is in the same situation. Many cyclic analysts would have to admit defeat when confronted with the straight line move since the middle of April, but commonality with other markets bolsters my confidence that the 40-day cycle is forming a trough now. Note how price has hesitated at the FLD.

20-day FLD providing support

Euro/US Dollar

One of the markets that is providing us with “commonality” information is the Euro, which has recently formed a 40-day cycle trough:

40-day cycle trough in place

Note here the very clear M-shape of the recent 40-day cycle, which makes the analysis simpler, and informs us that there is a 40-day cycle turn “in the air”.

Gold

Gold is also expecting a 40-day cycle turn, although it is a peak as opposed to a trough. The cycle shapes here are also distorted (to the downside), but the W-shape of the 40-day cycle is visible.

Expecting a 40-day cycle peak

30 Year US Bonds

The interesting thing about commonality is that some markets beat with a syncopated rhythm. Whereas most markets are currently forming a 40-day cycle turn (the Euro, US stock markets, Gold, Crude Oil), some are clearly forming a turn of one cycle lesser magnitude, as can be seen in Bonds, which are forming a 20-day cycle peak.

The syncopated beat

The principle of commonality suggests that markets form turns of the same cycles close to one another, but not necessarily at exactly the same time. We often see this sort of syncopated rhythm as a result.

Crude Oil

The cycles have been clear in Crude Oil recently, making it another instrument that helps to provide us with useful commonality information. Here too a 40-day cycle turn is forming, and the M-shaped cycle is evident, if a bit messy.

Expecting the 40-day cycle trough

US Dollar Index

The US Dollar is beating a similar rhythm to the US bonds at the moment, and here the first 20-day cycle trough following the 80-day cycle trough of early May is forming.

On the off-beat

Don’t forget to take a look at the new Hurst Signals service, and enjoy the Traders World Online Expo. 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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