I like to look at a Hurst analysis from many different angles, and while considering the progression of “bullishness” in the US stock markets this week I stumbled across a possibility that I would love to hear your opinion about. It has bearish implications, and so this post carries a BEAR warning!
But before we get to that, here is a follow-up on the 18-month VTL.
I wrote last week about price crossing below the 18-month VTL, and mentioned that I would want to see the median price on a weekly chart cross below the VTL before declaring that the 54-month cycle peak was behind us. That happened this week:
The week was characterized by big-range alternating up and down moves. When that happens I always suspect it is because price is struggling to cross an FLD or a VTL, and of course this week it was the 18-month VTL:
But now let me get to the analysis that I would like to get your feedback about. I have written before about how I like to calculate the “bullishness” of a cycle. Because of the way in which multiple cycles combine, and the M-shapes that result in the price movement we expect a pattern in the “bullishness” of the cycles: A bullish cycle followed by a bearish (or less bullish) cycle, and then a more bullish cycle, then a less bullish cycle and so forth.
I have been watching two analyses over the past few months (see this post for an explanation of the differences). Here is one of them with the “bullishness” of the 80-day and 40-week cycles marked:
The current cycle figures assume that the 40-week cycle trough forms today, which is a premature assumption, but it allows me to “pencil in” the figures.
There is a problem here: the sequence 75% – 92% – 57% does not follow the expected pattern of Bullish – LESS bullish – Bullish. What is wrong? Here is a longer term view which shows this analysis:
Looking at the last two years it easy to see why there are analysis questions – choosing between the troughs in a strong bull move is difficult.
Let me get to the point. Here is an analysis that resolves the bullishness “problem”:
What do you think? Is it possible that the 18-month cycle trough occurred in April instead of February?
The analysis doesn’t break down as well in the shorter cycles, but it does resolve my bullishness problem.
Note as a matter of interest that this analysis does not actually affect the 18-month VTL, which Sentient Trader draws correctly according to Hurst’s Rule #2: that a VTL must be drawn so as not to intersect price bars (page 7, Lesson 2 of Hurst’s Cycles Course).
Here is the recent “bullishness” when applied to this analysis:
This analysis is more bearish for the next few months because as shown in the chart above the next 80-day cycle is expected to be bearish, as opposed to a bullish 80-day cycle bouncing out of a 40-week cycle trough.
The more I consider this analysis, the more it makes sense to me, and the more bearish I feel. With the 54-month cycle peak behind us (which is the case no matter which analysis is correct) we are looking at a bearish year or two, and I wouldn’t be surprised if that bear starts exerting itself fairly soon after the 80-day cycle trough we are expecting now.
Let me know what you think!