S&P 500: Hurst Cycles - 12th January 2023

The 20 week component has been amongst the most dominant in the last 12 months. As stock markets approach the next peak of this wave, we will see dominance continue?

Jan 12

Analysis Summary

Stock markets have established their respective 18 month nominal lows, likely in early October and are currently approaching a peak of the 20 week nominal component ,with varying degrees of enthusiasm. The S&P 500 is muted, as are other US markets while European markets surge higher in recent weeks. The disparity in amplitude at the 20 week component is not matched by a similar disparity in frequency, commonality is very apparent.

The 20 week component in a composite of the S&P 500, DJIA, Nasdaq and Russell 2000, since 2019.

The peak of this 20 week component is the first chance to see if the longer term phasing, which anticipates a 4.5 year nominal low in late 2023 /early 2024 is correct and is still exerting influence on price action. The area to watch will be around the 54 month FLD, which has formed crisp support for price in recent months (see ST charts below). Both Sentient Trader and our own time frequency analysis suggest a trough of this component in early February. It is highly likely, if the longer term phasing is accurate, the 54 month FLD support will be broken (and target established) within this first 40 week component. The 40 week component is due to trough in June.

Price most likely formed the most recent 80 day nominal low toward the end of December, pushing up meekly when compared to indices such as the FTSE 100 in the United Kingdom. This is slightly later than postulated in our last report and nicely brings the US indices into line with their European counterparts. The 18 month FLD will likely form resistance to price and the 20 week FLD is currently being tracked in the latest move up. A line in the sand for confirmation of the 20 week nominal peak occurring is the 80 day VTL, drawn below on the Sentient Trader charts at the short term.

Phasing Analysis

Sentient Trader

Utilising a pattern recognition algorithm and Hurst’s diamond notation

Crisp support at the 54 month FLD is a sign of an accurate phasing up the level of that component. The 18 month component low is well established. The 20 week component continues to dominate. Crossing point of the 54 month FLD will be defined within the current 40 week component.

Time Frequency Analysis

Wavelet convolution targeting 20 week, 80 day and 40 day nominal components

The 20 week ‘nominal’ component running at around 120 days average wavelength from this sample since 2020. Modelling shows anticipated point of next component low, around February 6th.

The 80 day ‘nominal’ component is subject to significant frequency modulation, especially over the last 4 iterations. The most recent iteration sees a return to the overall average of the component over a longer period of time - around 60 days.

Extrapolated phase sees a forthcoming cluster of peaking components, most notably around the 34 to 66 day wavelength. The collection of red points in future time and toward the anticipated peak circa Jan 22nd on the composite bandpass indicate significant phase clustering.

Two candidates for the 40 day ‘nominal’ component exist. One at around 36 days and one at 25 days. One of these is likely a harmonic and is also reflected at the 80 day level by a weaker powered component around 75 days. Both suggest the next 40 day nominal low around Jan 21st-25th

Trading Strategy

Interaction Status

Interactions and price in the FLD Trading Strategy (Advanced). This looks at an idealised 40 week cycle and an array of 3 FLD signal cycles. We apply the instrument’s phasing to the model and arrive at an overall summary for the interactions with the 20 day FLD, current and forthcoming.

Sigma-L recommendation: Risk Sell
Entry: 10 day FLD (risk on) / 20 Day FLD
Stop: Above forming 40 day nominal peak
Target: 3800, tracking 20 week FLD, support at 54 month FLD
Reference 20 Day FLD Interaction: D2
Underlying 40 Day FLD Status: F
Underlying 80 Day FLD Status: D

A straightforward opportunity here, price has bullish influence from the recently formed 18 month nominal component so targets are modest around the 54 month support. Should price breach the 54 month FLD on a weekly median price bar basis within this 20 week iteration, due to trough early February, that is a bearish sign and supports the longer term phasing with compelling evidence.

FLD Settings

If you do not have the use of Sentient Trader use these settings to plot common FLDs in your trading software (daily scale) to more easily follow trading signals and strategy from Sigma-L.
Make sure to account for non-trading days if your broker omits them in the data feed (weekends, for example). The below offsets are given with no added calculation for non-trading days.
80 day nominal: 62.7 days | 31 day FLD offset
40 day nominal: 32.3 days | 16 day FLD offset
20 day nominal: 15.7 days | 8 day FLD offset
10 day nominal: 8.8 days | 4 day FLD offset

Correlated Exposure

A non exhaustive list of correlated instruments for consideration

SPDR S&P 500 ETF Trust SPY 0.00
iShares Core S&P 500 ETF IVV 0.00
Vanguard S&P 500 ETF VOO 0.00
SPDR Portfolio S&P 500 ETF SPLG 0.00
Direxion Daily S&P 500 Bull 3X Shares SPXL 0.00
Direxion Daily S&P 500 Bear 3X Shares SPXS 0.00
ProShares UltraPro Short S&P500 SPXU 0.00
ProShares UltraPro S&P500 UPRO 0.00

DISCLAIMER: This website/newsletter and the charts/projections contained within it are intended for educational purposes only. Results and projections are hypothetical. We accept no liability for any losses incurred as a result of assertions made due to the information contained within Sigma-L. This report is not intended to instruct investment or purchase of any financial instrument, derivative or asset connected to the information conveyed in the report. Trade and invest at your own risk.

2 Comments

Terry Pascoe

Jan 12Liked by David F

Great stuff David. It's all coming together nicely thanks to your clear & concise explanations

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Antifragilefx

Jan 15·edited Jan 15

Yes, David really brings high quality content. What I really value is his way of putting together information into a single analysis with a more likely scenario and an outlier that can be tracked along the way.