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Thanks, Airedale. I see these are the issues that divide the amateur from the pro when it comes to understanding and applying Hurst. This is the kind of insight I have benefitted from so much in following your writings over recent years.
Belt
Thanks, Airedale. My question was really coming from some financial advisor types who question the Hurst system, saying that we just make sh*t up when the cycles don't do what we think they should. :)
It is an important question to ask ourselves from time to time, because this is a very normal human tendency--to rationalize or explain away data or events that don't fit our particular prejudice or point of view.
Also, in 2003, we had a situation where all cycles were up, giving an added lift. So in that case the cycles theory supports actual market behavior. But I can easily find other cases during the 1990s that support the same point you were making where even late in the 4-year cycle, there was barely a drop in the 40 or 80-week lows.
BBelt
Two questions:
1) How many years of data did Hurst analyze to identify and verify the cycles?
2) Is it theoretically possible that the market would bypass a major cycle such as the 80-week low? I know that if all we got was the equivalent of a 5-week low, there would be those tempted to call it the 80-week low, but that would be cheating in my view. An 80-week low where the 4-year cycle is now pointing down should have a fair amplitude to the downside--at least something larger than a 5-week cycle low. So I would expect to see the S&P dip to at least 1220 as a minimum target. So here is what I'm asking: Is it theoretically possible that if the S&P does not exceed 1280 at the high that it would dip no lower than 1250 at the 80-week low? Or is the 80-week so compellingly necessary that we will see that larger dip to 1220 minimum no matter what?
BBelt
3 Peaks and a Domed House
Last year we heard a great deal about this formation. As it turned out, the market put one more peak on the house before falling into the lows of April/May 2005.
If you look at the $INDU on a weekly chart since May 2005, you will see that the formation has reappeared. This time we will likely get only one peak--the current one--before we fall into the lows of mid-to-late January.
Fasten your seatbelt. Between Christmas and New Years, expect to see a headline in the business section that says: "The Grinch That Stole Christmas."
BBelt
Due to a lack of interest, the 80-week low has been cancelled.(EOM)
Thanks Aire for the analysis. I get it. (EOM)
Airedale/Cash: What is your anticipation concerning the holidays messing with the cycles again? Last year, the rally plus holding until after the New Year delayed the 20-week low. Could it happen again?
I know the cycles we're looking at now are larger/stronger down, but with the bullish signals this market is sending, we could see some interesting market action. For example, one scenario would that the market pushes to a peak in November (after the 2.5-week low upcoming) and then declines fairly steeply into upcoming 5-week low expected December 1 (+/- a few days). Following the 5-week low, we could see a decent attempt at a Santa Clause rally followed by a flat to slightly declining market into the New Year. Then, we might see a repeat of last year's action with a heavier selloff into the 80-week low.
So I see two distinct scenarios: 1) The one laid out above. 2) A more traditional selloff into the 80-week low beginning just after Thanksgiving and completing around January 9. In this scenario, any rally attempt out of the 5-week low would fizzle.
Of the two, the most likely is the first. That is how I will play it, while watching for any signs that the market is choosing option 2.
Belt
USA--What's your take on $RUT? THX. (EOM)
Cash, I have seen the discrepancies between the $NDX and $NYA and other indices for a while. I'm chalking up these discrepancies to differences in sector weighting--or as Airedale sometimes puts it, the $NDX is more like a sector itself than a broad index. For these reasons, we can get variations in the $NDX that in the long haul are brought back into alignment with the other indices.
I have been getting my most reliable readings on the market following the commonality principle. I'm finding the other speculations to be wrong as often as right--and flipping my trusty penny works about as well. I have seen a number of such speculations over the summer--few of which have paid off.
Belt
Agree. Expect only a 2.5-week low next.(EOM)
Cash, this will scare you, but I agree. (EOM)
Bliss, let's not get carried away. Hitting 10,600 is a real possibility, but blowing through it will be saved for another day at the least.
Belt
Check out the $TRAN. The runup is fantastic. Panic short covering is part of it. Currently hitting 4-year cycle high, contrary to expectations given fuel prices.
Belt
Dumb question: Why do gaps always get filled? Is this just a coincidence that people have made into a religion? Stocks go up and down and so it would naturally make it look like gaps *have* to be filled. But I can see no compelling reason why this is so.
Belt
This has been one ugly basing process, and wouldn't be at all surprised to see the market fall back to the bottom of the channel before launching into any rally.
Belt
USA, what is your read on $RUT now? TIA. (EOM)
TeaParty--how do you do that?! (EOM)
$NYA put in a lower low yesterday and is leading the way down again today. The lower low yesterday discounts the idea that the 5-week low came in October 13. Therefore will expect 10-week low soon--late next week or early the following.
Belt
After reviewing the evidence, I see the possibility that Thurs., October 13 was the 5-week low, putting the 10-week low 4 weeks out from here. This is the case Cash has put forward.
The competing theory is that October 13 was a 2.5 week low following a 5-week low in late September. If this true, the 10-week low will be in around November 1 (+/- a few days).
I'm suspicious of the first possibility because it calls for smaller cycles running long when they have been running consistently short.
I'm suspicious of the second hypothesis because it requires a funky 5-week cycle low in the last week of September.
If the latter view is correct, the market will fall again from here and put in a bottom somewhere around November 1 (+/- a few days). Then it will rally or trade sideways through the time that Cash is expecting a 10-week low.
If anyone has clear evidence to decide this case, please publish it.
USA? PMiles? Airedale?
Belt
One of the biggest advantages of Hurst--and it's one of the easiest ideas to apply--is the ability to plan for major cycle moves. For example, based on the $BPSPX, you might expect a substantial and lasting rally to follow the upcoming low. Based on Hurst, I expect the rally to fizzle after a few weeks and roll over into the 80-week low. I like having major clues concerning what is coming.
Along with reading the book, I highly recommend Airedale's recent posts responding to my questions concerning FLDs.
Belt
Will continue to count last Thurs. as 2.5-week low until proven otherwise.
Belt
I'm looking for a rally that runs up moderately out of 10-week low (expected between October 27 and November 3) for about a week to 10 days, up-and-down and sideways across November, and then a resumption of decline beginning last week of November or first week of December into 80-week low.
Belt
Cash, did you mean late October for 10w low?
===============
You wrote:
then ideally down into Friday's 6-7 day cycle low (no target yet), and imho further down into late November into (next) 10w cycle low (that's my best phasing as of right now).
The real message of RFX is this: If this country is ever hit with a real financial crisis, say for example a terrorist attack that involves biologicals that locks up our transportation systems and therefore the entire economy, no money anywhere would be safe. Accounts would freeze. Financial gridlock would ensue. The market would be unable to make good on excessive use of derivatives.
Any number of scenarios could spark such as crisis in an economy that towers so far above what is reasonable, safe, stable when it comes to ratios involving debt to GDP, debt to equity, or paper dollars printed to equity.
This has nothing to do with fundamental analysis of the market's next moves. This has to do with assessing the economic risks of being in the system at all.
Only one question remains: What the h*ell is the alternative?
Belt
Airedale, when you say that this area will hold at the 2.5-week low, are you saying that the 10-week low will not be a lower low?
Belt
Airdale, thanks. Will read up on all this weekend. Great stuff.
Belt
Wow! I asked exactly the right questions. Thanks, Professor Airedale. I'm delighted. I will go back to the book, read through what you have written, and see whether I can make sense of it.
Truly appreciative,
Belt
Cash, can you explain to me then why sometimes the FLDs--at least as they appear on barchart.com--are so confusing, sometimes giving a good, clean cross and other times not. As they appear on barchart.com anyway, they seem extremely unreliable as a consistent source of market information. Sometimes they are extremely good, clear, and accurate, but I have seen the opposite plenty of times. Agree or disagree with that?
What is the market mechanism or reasoning behind an FLD? Why does it become probable that the market will continue to a certain point if the line is crossed--but not if the line is not crossed. Up to now, I've been taking it on faith. Lately, however, I get no clear picture from the FLDs, and I'm wondering why. They seem all screwed up with conflicting messages at best. Is this because barchart.com calculates them in some imprecise or odd way? Do you get a cleaner read on your own charting system?
BBelt
Another thing: We now have on this board 3 different opinions about the smaller cycles. I suspect there are grounds for reasonable people to disagree, because let's face it, 1.25-week cycles are pretty insignificant and slippery little critters.
I put the 5-week low behind us (around 9/28, 9/29) and the 2.5-week low just ahead (next few days). This puts the upcoming 10-week low at November 1 (+/- 5 days). This is a bearish scenario to say the least.
BBelt
Discussion concerning FLDs: I'm concerned about what I'm seeing. Don't trust them. Sometimes they tell us meaningful information and sometimes they don't--and I highly dislike any system that delivers mixed information because then it falls into the category of flipping pennies. I see nothing about the market or its behavior, nothing about cycles or their interaction which would compell FLDs being a scientific approach to predicting market behavior. The only thing I see that they measure is momentum, so that when an FLD is crossed, it suggests the momentum of the market is in a certain direction and likely to continue for a certain length of time. Sometimes the market overshoots and sometimes it undershoots, and sometimes the FLDs don't get crossed and the market does what it wants to do anyway.
The part that concerns me most is when the analyst begins reading the FLDs as if they were tea leaves, interpreting this and that, and imagining he or she understands what is going to happen based on the interpretation. Again sometimes this does work--but sometimes it doesn't, and so does flipping a penny to see whether it lands heads or tails. What concerns me even more is when the analyst has a preconception of what the market is going to do (bullish or bearish) and then focuses in on specific details of FLDs to prove the point of view. What I have noticed is that there is a tendency to focus in on these details when it suits the bias and to ignore the same details when it doesn't suit the favored hypothesis.
Yes, this is all designed to encourage friendly discussion of the Hurst hypothesis. It is a hypothesis that I buy, but I just don't grasp at this point the compelling forces that would make FLDs a reliable market signal.
Don't get me wrong. I have seen dozens of times where the reading has been absolutely dead on--dead on. No question. Absolutely. However, I have seen other situations like the current one where the signals and the interpretations have been weak at best. No offense. I want to get to the bottom of this issue.
Questions:
==========
What is the logic behind FLDs? Is it just a momentum signal?
What is the accuracy rate of FLDs? Really. Statistically.
I'm looking for a just-the-facts discussion. No hurt feelings or religious blind belief in Mr. Hurst--no offense to this technical genius.
Thanks in advance!
BBelt
Bongo, that support may hold for a bounce but will break soon--at least before year end. BBelt
Evidence is pointing to 2.5-week low directly ahead--not behind. JMHO. BBelt
$BKX has already hit the previous 40-week low. Golfin, that tends to support your case, and I think the bullish sentiment on this board has blinded us to the possible message. There could be something more serious afoot.
BBelt
Golfin, what indicator (or combination of indicators) would tell you that the market will fall that dramatically? Can you point to a technical indicator (or a combination) that would give me that reading? It sounds to me like you are reading the fundamentals and assuming the market will fall hard. Correct me if I'm wrong.
Belt
I don't care which scenario plays out. But as an analyst, I always want to be asking, "Do I know this with a high-degree of certainty or am I speculating?"
For a technically-oriented board, I see many comments that seem to fall in the latter category. And I hope no one minds this reminder because if you really practice it, you will earn more and lose less.
BBelt
The problem with counting from 9/22 is that 9/22 may not be the last 5-week low being so close to the previous 2.5-week low on 9/15. OK, maybe the hurricane blew the cycles around, but maybe it didn't, and there is no way we can know. So pretending to know leads to speculation.
Another interpretation of the hurricane phenomenon is that the fear gave the first 1.25-week cycle out of the 2.5-week low on 9/15 increased amplitude. Then the market tried to snap back but couldn't muster the strength against the 5-week cycle pointing down, and then put in a 5-week low around 9/29. This actually conforms to market behavior, because if the 5-week had bottomed on 9/22, we would expect to see the market climb more directly as it did on 9/29. In this scenario, then, the last 1.25-week cycle completed last Thursday, and the next 2.5-week low is due in a few trading days. If this view is correct, we are looking at an extremely bearish market with a miserable month ahead.
Only market action will verify which interpretation is correct.
Good technique creates good luck!
BBelt
Cash, Airedale--question here. Timewise I'm wanting to count this move down as the 1.25-week low. Yet from the look of the chart, it looks like a 2.5-week low. I'm expecting it to complete today or tomorrow.
Is there any way to answer this definitively?
Belt
Watch for shift in sigma el. The most confusing and turbulent weather always occurs between the seasons. (EOM)
Cash, regarding market weakness, see $BPNDX on stockcharts.com. Not dramatic weakness--but a weakening nevertheless--and I see the pattern developing there as part of the overall formation that will become part of the the 10-week and 80-week cycles down.
I don't dispute your observations in any way. The market often makes one last climb even as underlying weakness is preparing the fall.
Looking at the market since the 20-week low, I so far see little evidence of strength--especially not sustainable strength. In fact, just looking at the overall pattern of the $INDU and $SPX, I would be forced to conclude the opposite. Now we can blame the hurricanes for the pattern, but as we have so often observed, the fundamentals and the interpretations of them often fit right in with the cycles.
I focus on intermediate-term investing (20 and 40-week cycles), and so that shapes my perspective somewhat. I find it hard to get excited by the $NDX hitting 1635--although that would make a great entry point for a short.
I do see the setup for a rally. We will see if the market follows through.
BBelt
Looking at the market action since the 20-week low, a few things are becoming clear:
1) The market is weakening.
2) Even if the market moves a little higher, the current formations will likely appear to flow right down and into the 10-week low followed by the 80-week low. In other words, if you visually scan the $INDU or the $SPX from the 40-week low to present, a rounded head and shoulders pattern is becoming apparent that will likely flow smoothly all the way into the 80-week low.
3) Today's hesitation is part of that weakening process--even if the market finds the strength to temporarily break above this resistance point.
BBelt