Nifty Hurst Cycles - 8/15

Starting an update for coming week.

First of all - Happy Independence day to All!

Had a good question in comments from last week from Chandra..A very good and valid question indeed. I will try to explain to the best of my knowledge -

Question -

Lee,

Thank you for sharing this method in detail. Very interesting indeed. But one question, from your picture, May 2010 seemed like the period where multiple timeframes were converging. Why wasn't that an important low and why should the another 18 month cycle from 2010 may leading into 2011 oct/nov should be given higher importance?

Yes May 2010 period was the last 80 week/18 month low but it was not as pronounced as expected. Why?

While we can never be sure about anything, I think there are 2 reasons for this.

1. Like I explained in earlier posts, always there are multiple cycles running in the market, the combination of which makes the complete composite movement in the market price movement. What we are trying to do with our Hurst analysis or phasing is trying to determine which cycles are present and trying to determine what might be the important possible lows in the market. At certain periods of time, a larger cycle might be pointing down while a smaller one may be pointing up..Hence the larger cycle will dominate the smaller cycle and push the market down. Now take this to the next level; Imagine many cycles acting together in concert - this might not give the expected results and instead we will get a sidewise movement. I believe this is what happened in May 2010.



Take a look at this monthly chart. Now we have the 40 and 80 week and the next highest cycle, the 4.5 year(or 54 month) cycle shown here. 3 80 week cycles make up the 54 month cycle. (there is an important point here - lets see how many spot it)..So in May 2010, we were in the 2nd 80 week cycle of the 54 month cycle. And now in the last 80 week cycle of the 54 month cycle. So now you might be able to get the importance of this particular low - its not only the 80 week low but also a 4.5 year low and also very possibly the 9 year low as well(not shown here)! So the importance cannot be understated here. Watch the falling and rising of the arcs shown here and you can understand..The 54 month and the 18 month and possibly the 9 year are exerting downward pressure here - hence the importance. While in May 2010, not so much.

2. Next, fundamental pressures. Now imagine the intense monetary easing that was happening since the 2008 crash..All this effect was there even in mid of 2010. Hence we got a muted low..Now on the other hand, we dont have that much monetary effect or liquidity..Hence this low might take the natural course. Hurst says that fundamental factors will affect cycles - and cause them to deviate slightly from the norm.
I will give more importance to reason number 1 above..But thought of mentioning this also.

Now you might ask why is this a 4.5/9 year low and why not the Oct 2008 bottom. There are several reasons and methods used to arrive at this which is too much for me to go into at this point but as we go along, you may understand more. Suffice to say, when we phase back, this timing fits best. And also when you look at other markets specifically US as well, this model fits the best overall - this is known as commonality in Hurst language. More on that later.

Either way we are getting a bottom and our job is to figure out when it will happen and after that also, when it might top.

A shorter term look again -



Pretty much same as before. As I said before I believe that the 20 week low came on 6/20 and then the low we had few days back around 4950 was the 5 week low. And now we are having a weak bounce out of that low. So as I have been saying before we are within the last 20 week low in this 80 week cycle. So its a bearish 20 week cycle within likely a bearish 80 week cycle. And the fact that we are severely left translated (read earlier post) confirms this fact.

Still looking for a major low sometime in November. I would harbor a guess of around November 2nd-3rd week for a major low. But as I said we will fine tune as we get closer.

Comments, questions etc welcome.

Best,
Lee