On Friday I wrote about when we might expect a peak in the US markets. The next obvious question is: when do we know that the peak has occurred? It is all very well expecting a peak, but if the market begins to fall there is the danger of calling “PEAK” prematurely. In Hurst terms there are two ways of confirming that a peak has occurred:
- When median price crosses below an upward VTL of one cycle shorter than the cycle whose peak we are looking to confirm.
- And when median price crosses below the median price FLD of the cycle whose peak we are looking to confirm.
Generally the VTL cross occurs first, but VTL’s are also less reliable than FLD’s.
The peak that we are expecting is a peak of at least 80-day magnitude, and so we should watch the 40-day cycle VTL, and the 80-day FLD. Price will only cross that FLD when half the move down is over, and so I prefer to watch a shorter FLD. The 20-day FLD interacts very reliably with price (see all the posts about the FLD trading strategy) and at present we are expecting the final cross down below the FLD within the current 80-day cycle, and so effectively when price crosses below the 20-day FLD that would be an early (and not strictly speaking “confirmed”) indication that the peak has occurred.
Here are the 40-day VTL and 20-day FLD on a chart of the S&P 500 (ES futures contract):
The two levels are very close to each other through the rest of this week, and range from about 1860 today (Tuesday 11 March 2014) to 1876 on Friday. Bear in mind that the median price must cross the line in order to confirm the peak.
