The Weak Sisters – NDX & RUT 2

Over the past three months the US indices have exhibited a rather marked divergence in relative strength. This is particularly evident in the Russell 2000 and the Nasdaq 100.

The chart below is a daily chart of the Russell futures. The price wave shown at the bottom of the chart is the 80 day wave extracted using Hurst’s bandpass filter. The shorter wave above it is the 20 day wave and the envelope is ostensibly the sum of the waves longer than 40 weeks. It easily can be seen that the 80 day wave formed eight (8) consecutive higher 80 day highs. That streak appears to be on the verge of being broken.

TF ##-## (Daily)  10_4_2012 - 4_25_2014


One of the more difficult issues to resolve in cyclic analysis is identifying and properly phasing duration fluctuations. We know that the average period of a price wave drifts slowly over time, but the cycle-to-cycle change sometimes can be quite dramatic. The current oscillation of the 80 day wave presents such a situation. The filter output suggests that the 80 day low may have formed at the end of March. However an argument can be made that the 80 day formed in the middle of April. Resolution of this dilemma can sometimes be made by analyzing the shorter price waves, or at the very least keep one on the right side of the trend.

The chart below is a 4 hour chart of the Russell futures with the 10 day wave extracted at the bottom. Coming out of the February 80 day low, the price action formed a series of higher 10 day lows and higher 10 day highs. The last few weeks the pattern is not as clear. If one assumes that the mid-April low is the 80 day low, if long, a tight stop based on the 10 day wave would be very prudent.

TF ##-## (240 Min) _ TF ##-## (Daily)  4_26_2014

Here is the same chart of the S&P 500 futures. Not as weak as the Russell, but not awe inspiring from the long side either.

ES ##-## (240 Min) _ ES ##-## (Daily)  4_26_2014

For those so inspired, additional fine tuning is available through shorter waves.

TF ##-## (240 Min) _ TF ##-## (60 Min)  4_27_2014

The next several days will determine whether the intermediate uptrend is still intact or whether the indices are in the early stages of a change of trend. Due to the relative weakness of the NDX and RUT with respect to the S&P 500 and that the trend underlying the 40 week wave has turned down, the risk has shifted to the long side of the market.

William Randall

About William Randall

I'm a retired attorney who discovered the fascinating world of the financial markets almost two decades ago. After learning about Hurst, I've spent the last several years honing all the skills necessary to fully implement the techniques he taught.

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2 thoughts on “The Weak Sisters – NDX & RUT

  • José

    Impressive post Willian, thank you for sharing!

    I’m also suspecting that things are changing from positive to negative.

    Your post is also arising something that I’m working on, yes it is true that the average periods is quite stable but as, you mention, it can dramatically vary from cycle to cycle. I’m currently working in the other alternative, which is based on the idea of cycles can shift dominance dramatically, from one to another. It can be considered as a dramatic change in wavelengths, but I’m not sure about that, instead I believe it is related to cycles’s “popularity”

    Few days ago I posted this comment on Hurst Signal talking about this, I copy it here:

    Hello David,

    I really like your replay and I think you describe the real problem when looking ahead although, as you mention, it is highly mitigate with the FLD strategy. Yes, I also think that cycles can mute in a random and in a sharp manner but in its prominence.

    When I find this problem for the first time was when I started to use intraday charts on ST. In example, I realize that the 1 day and 2 day cycles FLD use to produce nice interactions but sometimes was better the 1 day but others was the 2 day, but it was impossible for me to decipher when it was going to mute from one to another. As I have mention sometimes before, my intraday strategy was mostly centered in looking for nice FLD interactions better than looking for nice phasings, Without knowing it in that moment, the FLD strategy mitigate that random behavior.

    But what I also believe is that when those two cycle mute it is because they mute their prominence, I think that wavelengths are quite stable but the, let’s say, the popularity of an oscillation can vary in a random manner. I think it is specially true on intraday charts but also happen in longer time frames. For instance, on the SP500 the 80 day oscillation (running around 55 days) has almost disappear, when it happens, always in my subjective observation, a longer cycle dominance is taking power, this also means that a subtle or straddle trough for the 55 day cycle is in place, so, more bearishness to come due to a longer cycle. This mutation can be considered as that the wavelength is varying dramatically, from 55 to much longer numbers…. but normally it is not the case. It could be finally phased as a nice 20 week cycle (running around 110 days, 2 x 55) with a straddle 80 day cycle trough in the middle.


    • William Randall Post author

      Hi Jose,

      You raised a couple of issues I would like to address.

      It is very important to understand the mathematical underpinnings of the price waves to get a grasp on this phenomenon of cycle-to-cycle variation. A dominant price wave consists of a band of angular frequencies. The number of frequencies included in the band is a function of how much data you are analyzing, among other things. Each frequency in the band has amplitude coefficients which also determine its phase. The amplitude coefficients are not constant but are modulated. It is this very complex dance of variables that causes the price wave to vary from cycle to cycle.

      When you get to the high frequency end of the spectrum the frequencies are packed very close together. This makes separating the dominant price waves a bit more problematic. In addition, as Hurst mentioned, the very short waves are easily overridden by fundamental interactions. The best example of this is probably the FOMC announcements.

      Fortunately the relatively short daily price waves (20,10,5,2.5) do not exhibit the same degree of modulation as the longer price waves and can only vary so much. Since FLDs are based on the average period of the price wave, I don’t find the variation to be much of a problem.

      Hope this helps.