Hurst Cycles - 8/7/2011 - Backup from VFM

I was thinking for a long time about closing down this blog and restricting my posts to VFM only going forward due to various issues. But after thinking for a while and after seeing a good response to what I posting on VFM, I am bringing that here also. Basically taking a backup because VFM has got a notorious history of losing older posts. I think this is valuable stuff so I want to keep it here as well.

Will be posting actively from now on..both here and on VFM.

I think this is very valuable stuff..Please go through if you missed on VFM. And you can also see how I traded using cycles.

Best,
Lee

FROM VFM - Link : http://www.vfmdirect.com/forums/show.cgi?topicid=1312717195#1313194596
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Hurst Cycles - 8/7/2011

Posted by: princely.k.mathew on 07-AUG-2011 (11:39:55)

Hello All,
Several months back, I cam back to this forum and I was trying to post more actively, revive my blog again etc..but over time I have found that I have not been able to concentrate on my blog frequently enough..so I stopped posting there..Over here also, I havent been able to do much constructive..

But anyhow, I have made a decision not to update my blog going forward..But I will try to give a weekly or bi-weekly update here on a normal case and in case of some important low or high, I will try to post earlier on an adhoc basis..Need to see how it will work out.

Now, as I mentioned in another thread, I have been dabbling in Hurst cycles methodology for past several months..And I like what I see so far. This is an abstract kind of methodology and I find very very few people out there who can practice this successfully.

A writeup on who JM Hurst was and what he did : "In the late 1960's a small group of private investors in California rented time on a mainframe computer---the only kind that existed at that time---and asked an aerospace engineer, J.M. Hurst, to help them in their stock market research. The results of over 30,000 hours of computerized data analysis were distilled and revealed in Hurst's 1970 book, The Profit Magic of Stock Transaction Timing , which has become a classic work on cycle analysis.
In the early 1970's Hurst authored a full-length course on cyclical analysis and on how to apply it to actual trading. It was published by Cyclitech Services, and Hurst taught the principles of this course in a series of seminars for a year or two. The material in this course is considered by many to be the clearest and most thorough material ever made available for those interested in learning about cycles and how to trade profitably with them. There were only 250 copies of the course ever sold. It has been out of print for the past 25 years.
In the mid 1970'2, Hurst, an intensely private individual, disappeared and has not been heard from again. We have had many customers over the years who were tremendously interested in Hurst and his work and were extremely interested in contacting him. They wanted anything he had written or done beyond his The Profit Magic of Stock Transaction Timing , but until now, there has been nothing available. I had only heard about this course in rumor for years. Only recently did I actually locate a copy of it"

I finally managed to get a copy of the book..very damn expensive..and have been studying it for past few months..I have to say its been enlightening to say the least..

I have dabbled in elliot and classical TA but I have not anything like this capable of pinpointing cycles to this level..I mean major lows and tops only this one can do..And together in combination with other forms of TA, it forms a very powerful tool.

A little bit about it..Hurst said that cycles move in a nominal model with deviations..there is a 5 day cycle, 10 day, 20 day, 40, 10week, 20week, 40 week, 80 week and so on. There will be deviations and thats what we try to figure out using Hurst methods..There is so much of work involved in the background that it will be futile for me to try to explain here..I will however try to explain bit by bit in future posts...But for now it will suffice to say, that the Hurst Theory trys to identify major price lows and highs in time...Each of this low and high will have a certain degree based on the timeframe..80 week low, 40 week low etc.

Most people will remember from my posts in beginning of year when Nifty was around 6000 when I said we are going to get an important low toward end of this year..Oct end/Nov mid timeframe..We will fine tune when we get closer. This was based on Hurst methods and specifically the 80 week cycle. March 2009 was an 80 week low..so you can imagine the potential for a rally from end of year..we will see..



This is what I wrote last week -

For now, if you see the chart attached, the 40 week low was in Feb mid, we had a good bounce from there..then the 20 week low was in June mid..Another good rally from there..and now we are moving into the next 20, 40 and 80 week nest of lows toward end of Oct/Nov mid timeframe. Right now, a 10 week low is due in 3 week or so of August..So I also expect market to remain week till then and even after that, the bounce we get will be weak..Infact I see potential for 5200/5150 to be broken before that..I mean before we get a good bounce..Then again another big fall from Sept mid or so into Oct end/Nov mid..Before all this is over..
I hope I made some sense..Hurst is tough stuff..But I have been dabbling in this for some time now and I have to say, I am very happy using it..Its complex..so not for faint of heart..

Now in future posts, I will try to bring some more clarity to what I am trying to say...put up more info on longer and shorter cycles and so on..And what I expect going ahead..

I hope some people find this useful and I would appreciate comments and thoughts as always.

Best,
Lee


Posted by: princely.k.mathew on 07-AUG-2011 (12:00:54) [IP address: 197:253:94:----]




Ok now a look at the longer term cycles..see chart attached..the stacks of diamonds show major lows in the market..this is a weekly chart...so shows 80, 40, 20 week lows..And higher ones also like 4.5 year and 9 year lows..I dont pay too much attention to these but for me the 80 week cycle is very important..

As I mentioned earlier, the rows of diamonds or the semicircles indicate which cycle it is. The diamonds indicate the lows and on the extreme right you can see which low it represents..The semicircles help to visualize a bit more easier..Showing the rising and falling of each cycle...from the 9 yr down to the 10 week/80 day cycle.
You can see from my comments the important lows marked and the projection in time for the next important low. Complex spectral analysis is behind all this analysis..I will touch upon this more detail later.

Now shorter term, this is always more difficult to fine tune..but like I mentioned in my last post..We are close to another important low..I expect by 2nd week to 3rd week of August...This is the 10 week low from where we should get another pop up after which the decline should continue into another very very important low..the 80 week low around end of Oct or mid of Nov. This is what I have been saying since beginning of year and still reiterate the same..I will be looking to recommit long term fund around that time which I had exited earlier this year.

I hope I have been able to make some sense..Watch out for future posts. I will be focussing bit more on shorter term cycles in next post..probably tomorrow.

Comments are what will encourage me and make me go ahead..so I would always appreciate the same.

Best,
Lee

Posted by: princely.k.mathew on 08-AUG-2011 (08:43:29) [IP address: 197:253:94:----]

Hi Guys,
Thanks for your comments and interest...much appreciated!

Nikhil, from the other thread -
Yes complex..but maybe its for me alone since I just started couple of months back..Already I can see some differences in my approach and its a good thing so far. Account balance speaks!
And the good thing is over time, this might come also simple and natural to me..I hope so..Atleast I know a few Hurst Technicians doing a an awesome job out there consistently..It amazes me how they do that..

The difference b/w elliot and this is great..Elliot is too subjective..This is also subjective but there are some good guidelines to help us be on right side of trade..

I will try to post regularly on Hurst here..I hope it benefits folks.

I use this with some common sense, other market TA and its giving benefits..

Gera, you are right..Its very very useful for investor types..For traders, as you become experienced, you will be able to trade smaller cycles..And this is what a trader needs..However smaller cycles become tougher always..I find the 80, 40 and 20 week cycle best for trading or investing..Sometimes the 10 week and 5 week also work out..But need to be very careful when using these..

Lets try to figure this out together with live cases in real-time.

Now coming to the book, yes this is the first book that JM Hurst wrote..BUT I would caution against reading this because this was his initial work and later after long long years of research, he did a complete course for Hurst students..This is what I have bought and am studying now..This is what I said is expensive..comes to around 500$..

Link - http://www.traderspress.com/detail.php?PKey=99

Some history around JMH can be read there..

Hurst experts advised me not to read the first book but get the course and study that..So I will say the same also..But you cannot get the course online for 'free' anywhere..have to buy..it includes 10 audio cds and 2 extensive manuals..Once I study this fully, if anyone is really really interested, I can pass it on..but this takes time..Dont go for it unless you really are ready to spend some real effort.

One thing I'll say..this is one of the best market methods out there I have seen..But its difficult so most people give up on it..Here in US also there are very very few who use it successfully. I dont know of anyone in India who does..

I had thought of putting up a shorter term market cycles post today before market opens but its almost open..so later..let me focus on my open positions..I want to close all shorts today..I know my projected lows can still be a few days into future but there are few uncertainties here and I want to take my profits.

Later.

Best,
Lee


Posted by: princely.k.mathew on 09-AUG-2011 (09:32:43) [IP address: 197:253:94:----]
Well it looks like I was early in covering my shorts..hehe..but in a ultra fast market as this, I think I should be happy with the profits even though missed some..

And today's initial morning strength is surprising..I think we are seeing the initial signs of a cycle low forming..I am still confused about the degree..I thought it might be a 10 week one but I feel that is unlikely now..So that leaves the possibility that its a 5 week low..We will need more data to confirm what it is..Meaning few more trading days...Whatever it is,looks like it might give a decent bounce.

Trading this wont be easy..But keeping your size small and stops very close, you should do fine..

So if the low is coming in today or tomorrow, we should see a rally for the next 2 weeks or so..August last week/Sept first week next top?

Let me stress again - We are seeing unprecendented conditions in the market now;;; Take my comments with some salt;;; Do your on research before doing anything.

Bala, Nikhil, will definitely try to do more work on this here..Feel free to ask questions in the meantime..

Btw GANN is too much for me..I have only seen one person use GANN to some success and that he used to combine with HURST as well..SO..

I will try to come back with a chart later..maybe tomorrow when things clear up a bit more.

Best,
Lee

Posted by: princely.k.mathew on 10-AUG-2011 (21:18:23) [IP address: 10:219:161:----]
Ok so far, so good..we did get the low..what next? Well, most likely we are right now in a wave 4 from the top with wave 5 still pending..so what we are seeing right now and over the next few days/weeks will be multiswing action and very fast markets..better to stay out if you arent nimble enough..I went long the day we had the huge gapdown, covered yesterday and even started few shorts..After a retrace, we should have one more pop high lasting few more days..maybe more to complete this wave 4 after which wave 5 down should start..This will likely be a longer affair going down into the 20, 40 and 80 week lows I had mentioned before coming in toward Oct end to Nov mid timeframe..It can extend into December also so we will fine tune as we go along...

Best,
Lee


Posted by: princely.k.mathew on 12-AUG-2011 (09:58:18) [IP address: 197:253:94:----]

I was holding some longs awaiting one more burst higher but I am not happy with what I am seeing so I am dumping the longs and going small short..5230-5250 range has to be cleared for next upmove else downward pressure will be on..

Too tired to respond to other posts or to post chart..so seeya all on the weekend!

Best,
Lee

Posted by: princely.k.mathew on 13-AUG-2011 (00:16:36) [IP address: 10:219:161:----]

So short was the correct move after all.I should have added prices in above post to make sense..but never mind..Short from around 5160 for now..wait and watch what next week brings. My gut still thinks that there is one more small upmove left but the market seems to think otherwise so I will go with the market :)

Bala, not surprised with the correlation. The 80week or 1.5 year cycle is an important one..I will try to describe more below.

Ranga sir, thanks..I dont like to read much into so called experts views..And I mean those who come on TV and those who send out emails..Not unless I know who those folks are.

Anyhow..

So I have some time right now..Thought I will explain a bit more around cycles and how it works. Might be a little deep, so anyone not interested to understand more around how this works, please excuse.

First of all..around cycles - I have taken some excerpts from online to write this up..So..

Cycles are extremely important because they help us frame the market within the dimension of time.

The first thing we should do is ask what cycles are - cycles are the observable tendency of prices from go from top to bottom to top to bottom at regular intervals. The price index will move upward from one trough until it reaches a crest (top), then the price index arcs downward into the next trough, or cycle low, as we sometimes refer to it. We can see the evenly spaced bottoms on the price chart that give evidence of the existence of cycles, but what causes this to happen? What is the cyclical force behind the price movement?

A stock market chart is a picture of human emotions expressed in the form of price movement. Fundamental events don't directly move stock prices, it is the emotional reaction to those events that moves prices. In a much broader context there are recurring events in nature and in the business cycle that affect human emotions. In other words, natural and fundamental events do affect the market, but only through the filter of human emotions. This is why it is so difficult to design economic or market forecasting models based on fundamentals -- humans can react quite differently to the same fundamental circumstances at different times.




There are two 10-Week Cycles within one 20-Week Cycle, two 20-Week Cycles within one 9-Month(40week) Cycle, and 2 40 week cycles within and 80 week cycle(18 month cycle) and so on. Where cycles of different lengths make their lows at the same time, they are said to be "nesting". This is a very important concept..Because higher cycles tend to make the lows at the same time together, its called nesting..This is why LOWS are very important and easier to identify..But tops tend to be spread out - called topping formation. This is also the reason why if you are bearish on the market, shorting is very difficult and you need to be very nimble. See the attached diagram too see what I explained above about cycles..Also my earlier charts should help illustrate what I am explaining here.

The most compelling thing about this picture is the impression of power associated with major nesting points -- where all cycles are making lows at the same time at the 10-Week, 20-Week, 9-Month, 18-Month, and 4.5 Year Cycle lows. Visually we can sense that price declines into these major lows will be quite severe, while rallies off those lows will be explosive and powerful. Conversely, there other areas in the cycle structure where the cycle forces are mixed, with some cycles moving up while others are moving down, and it is hard to get a sense of exactly which direction a composite of these cycles would be pushing the market.

You will often hear reference to a cycle's "translation". This refers to the fact that cycles rarely crest in the exact center between troughs. More often they will crest to the right of center, called a "right translation" cycle, or to the left of center, called a "left translation" cycle.

In a bull market the market spends more time going up than down, so we will normally expect major cycles to crest toward the end of the cycle, with the crest being followed by the down phase of the cycle -- a right translation. (this is what we saw after March of 2009)

In a bear market we would expect to see left translation cycles with cycle patterns exactly the opposite of those in a bull market. (this is what we are seeing now)

Check the earlier uploaded charts for a more visual feel of what I have explained so far. Read read and read this again...These are fundamental concepts in cyclic analysis.

I will explain more later..this is just basics! :)

I will post charts with latest views either later today or early tomorrow.

Questions and comments are welcome.

Best,
Lee