We are going to look at four key macro drivers in this week’s note. The Dollar Index, Gold, Oil and S&P 500 E-mini futures.
For the Dollar Index, we are stalking a 20 week cycle low shortly and then a price recovery. The 20 week cycle that started up on 10 August has an average wavelength here of 20.8 weeks. Price is now 18.7 weeks along its trajectory and the next trough is due shortly. There are two 80 day cycles in a 20 week cycle and price is now in the end-zone of the second. There are four 20 day cycles in the 80 day and we look to be rotating through the fourth and final 20 day cycle now. Thus, according to this analysis, there are no cycles left to advance and because the immediate underlying trend is hard down (i.e. the 20 week and 80 day cycles) price should fall. Price has also been funnelling down within converging trendlines since 22 November in what Elliotticians call an ending diagonal. As the name suggests, this price structure is associated with the end of a longer trend.
Note also that the end September peak was that of a very big cycle, the 54 month, and this cycle is still pressing down bearishly. This suggests that the next rally in the Dollar will be fighting a headwind and is likely to be countertrend. As such, once the 20 week cycle trough forms and price recovers, caution will need to be exercised on the long side of the market.
Gold’s 80 day cycle has just peaked and we are looking for a weak upside retest and then a for price to start falling well. On 15 December (last Thursday) price convincingly sliced down through the valid trendline (VTL) associated with the 40 day cycle, which according to Hurst cycle principles tells us that the 80 day cycle peak formed at the 13 December high of 1,837. This cycle must now be heading down.
This is confirmed by the peak circles at the top of the chart and the 80 day peak cycle line. Price looks to be rotating through the fourth and final 20 day cycle in the 80 day set and is expected to rise somewhat, kiss the 40 day VTL and then turn down. At this stage all main cycles from the 20 week cycle to the 20 day should be headed lower. The next 80 day cycle trough zone is expected from circa 10 January.
The current advance in Oil is entering an exhaustion zone. The 9 December low was that of the 80 day cycle and the first of four component 20 day cycles is still advancing out of this trough. The valid trendline (VTL) associated with the 20 day cycle lies just above and could well act as a barrier forcing an early peak and then a downside rotation into the 20 day cycle trough due towards the end of the month.
The reason for this more bearish interpretation is that the early November peak is that of the 40 week cycle which came in very early (bearish peak left translation). This strongly suggests that the longer underlying trend is down and all shorter cycles are fighting a heavy head wind; the dollar is also expected to rally soon, which adds further downside pressure; and finally there is a big 20 week cycle trough due in February, which is acting as a downside magnet.
The S&P500 E-minis are now in an 80 day cycle trough zone, which means that a recovery is due soon. The 80 day cycle FLD was crossed down hard last week and projects to the top of the cycle trough target box. However, the 13 December top was almost certainly that of a 20 week cycle, which points to a stronger downtrend component acting on price here. This could mean a deeper trough and/or a more muted bounce. Additionally, an 18 month cycle trough is due in early March and a lot lower. This is a significant cycle and adds to the overall bearish outlook. We will send an update if the 80 day cycle does trough this week and we get some more visibility on the power of a bounce.