S&P 500: Hurst Cycles - 1st September 2022
The S&P 500 falls from the 20 week nominal cycle peak and approaches targets around 3800. We look at what is next for this market as price approaches the 80 day nominal low in the coming days
The S&P moved somewhat more sharply from the low of at least 20 week magnitude back in early/mid July, a handsome bear market rally which was only stopped by the 40 week FLD in most global equity markets. This is shown at the medium and short term charts below and has been accompanied by some frenzied selling over the last few days. We speculated as to the position of the 20 week nominal low, with candidates being the 17th of June or the 14th of July, in our last report:
From July 29th Report
Price is tracking the 20 week FLD upwards at the time of writing and will likely continue to do so in the move to the next 40 day low, due mid August. If the 20 week nominal low occurred on the 17th June (rather than the 14th July) that low will also be an 80 day nominal low, the lower probability scenario at this point.
The lower probability scenario of the previous 80 day nominal low (and 20 week nominal low) occurring on the 17th June has now been discounted with the 80 day component due in the next few days, validating the average wavelength from a cycle low on the 14th July. This is also in common with European markets which we track in order to inform the analysis on sigma-l, such as the EUROSTOXX 50 or German DAX.
The question of whether the low on the 14th July was also a low of 40 week magnitude remains and is compelling. If it was the 40 week nominal low, it implies the previous 18 month nominal low was early October 2021. Whilst this looks visually compelling with a sharp low, we must be a little careful in extending the wavelength of the 18 month component to 18.4 months when the sample average is around 16. Of course it is not out of the question but would also imply a frequency modulation of the 40 week component within. In our experience frequency modulation occurs very slowly, amplitude modulation very quickly. Keen Hurstonians might also note that a 40 week nominal low should easily break the 40 week FLD on it’s ascent. It has markedly failed to do so here, finding crisp resistance, more in line with a rally from a smaller component.
Taking this to the longer term, we can expect the 18 month nominal low to occur mid October to early November (precision grows as we draw nearer) if the 40 week low did not occur on the 14th July. This is our default phasing and retains the average wavelength of the 18 month component around 16-17 months in duration. Should the 40 week low have indeed occurred on the 14th July, clearly the 18 month low is shifted further, to the late days of 2022. This is the outlier phasing in our longer term outlook at the moment. We still expect general support at the 54 month FLD (orange, long term chart) for the 18 month nominal low when it occurs, followed by a tracking of that FLD and then a further collapse during mid-late 2023.
Interesting times ahead, stay tuned.
Components greater than and including the 18 month nominal cycle
Components less than and including the 18 month nominal cycle
Components around the 80 day nominal cycle
Wavelet convolution output targeting the 20 week nominal component
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 Buy
Entry: 10 Day FLD (risk on) / 20 day FLD
Stop: Below formed 80 day nominal cycle trough
Reference 20 Day FLD Interaction: A4
Underlying 40 Day FLD Status: E2
Underlying 80 Day FLD Status: G
Assuming that the low on the 14th July was indeed only of 20 week magnitude the next long trade out of the 80 day low should be relatively tame. That said, the bear market rally from the 20 week low was sharper than anticipated so there is clearly amplitude retained at the component.
Expect price to continue to track the 40 week FLD generally, which moves up over the next month or so. Resistance forms at a level of around 4050-4100 where there is a confluence of the 20 and 40 week FLDs, shown on the short term chart in greens.
If you do not have the use of Sentient Trader use these settings to plot 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: 71.5 days | 36 day FLD offset
40 day nominal: 32.8 days | 16 day FLD offset
20 day nominal: 16.5 days | 8 day FLD offset
10 day nominal: 8.5 days | 4 day FLD offset
Correlated Exposure Options
A non exhaustive list of correlated instruments for consideration
SPDR S&P 500 ETF Trust SPY -1.07%↓
iShares Core S&P 500 ETF IVV -1.22%↓
Vanguard S&P 500 ETF VOO -1.21%↓
SPDR Portfolio S&P 500 ETF SPLG -0.98%↓
Direxion Daily S&P 500 Bull 3X Shares SPXL -3.42%↓
Direxion Daily S&P 500 Bear 3X Shares SPXS 2.73%↑
ProShares UltraPro Short S&P500 SPXU 3.19%↑
ProShares UltraPro S&P500 UPRO -2.35%↓