A few weeks ago I wrote about the 18-month VTL (Valid Trend Line) in the S&P 500.
Yesterday price came down to the VTL and touched it.
There are a few points worth mentioning here:
- If median price crosses below the VTL then we have cyclic evidence that the current 54-month cycle (or 4 & 1/2 year cycle) has formed a peak in the market, in other words we are not likely to see prices higher than the peak of 2014 (ES futures) on 19 September 2014 until after the next 54-month cycle trough. There is some debate about when that trough is expected, but most analysts would probably agree that it will not be before early 2016.
- If price does not cross below the VTL (and for a VTL of 18-month magnitude I usually allow a little leeway and like to see the median price of a weekly chart cross below the VTL) then it will very likely provide support. In other words this is a likely level for price to bounce and form a trough.
- If price does cross down below the VTL and form a trough below it, then it will almost certainly bounce back up to the VTL and touch it from below, providing us with a good target area for our long trades out of the trough.
Here is a view of the full 18-month VTL, showing the very accurate support that it provided to price in early August 2014:
Note that a VTL is only considered to be crossed by price when the median price crosses the VTL. Here is a chart showing the median price:
If the VTL provides support then it will very probably be the 80-day cycle trough in the S&P 500, and the 40-week cycle trough in some markets (as discussed by John in this post). If those troughs form well below the VTL, then it will provide a likely target level for the bounce.
This might be a fairly momentous Hurst Cycles moment!
(A moment of 4 & 1/2 year magnitude at any rate)
