The Cyclic Theory Of Stock Transaction Timing │ J.M. Hurst

In the 1970’s an American engineer called J.M. Hurst published a theory about why financial markets move in the way they do. The theory was the result of many years of research on powerful mainframe computers, and it became known as Hurst’s Cyclic Theory. Hurst claimed a 90% success rate trading on the basis of his theory, and yet the theory has remained largely undiscovered and often misunderstood.

 

Hurst published two seminal works: a book called The Profit Magic of Stock Transaction Timing, followed a few years later by a workshop-style course which was called the Cyclitec Cycles Course (now available as J.M. Hurst’s Cycles Course). There are a number of very enthusiastic advocates, prominent traders and writers who proclaim Hurst as the “father of cyclic analysis” and confirm the efficacy of the theory (including the late Brian Millard who wrote several books about Hurst’s theory), but why is it that the theory isn’t better known and more widely used by technical analysts? There are, in my opinion, two reasons:

Firstly, Hurst’s Cyclic Theory is not “easy”. While it is beautifully simple and elegant in its essence, it is not a simple theory to understand or to apply. The Cycles Course is over 1,500 pages long, and most people take several months to work through it. 

Secondly, although the theory presented in both the Profit Magic book and the Cycles Course is the same, there is a vitally important distinction between the analysis processes presented in the two. Hurst claimed his success on the basis of the process presented in the Cycles Course, whereas many people read the Profit Magic book and go no further, with the consequence that they never discover the more effective process presented in the Cycles Course. 

 

Hurst defined eight principles which like the axioms of a mathematical theory provide the definition of his cyclic theory. The eight Principles of Hurst’s Cyclic Theory are:

1. The Principle of Commonality – All equity (or forex or commodity) price movements have many elements in common (in other words similar classes of tradable instruments have price movements with much in common). 
2. The Principle of Cyclicality – Price movements consist of a combination of specific waves and therefore exhibit cyclic characteristics.
3. The Principle of Summation – Price waves which combine to produce the price movement do so by a process of simple addition.
4. The Principle of Harmonicity – The wavelengths of neighbouring waves in the collection of cycles contributing to price movement are related by a small integer value.
5. The Principle of Synchronicity – Waves in price movement are phased so as to cause simultaneous troughs wherever possible
6. The Principle of Proportionality – Waves in price movement have an amplitude that is proportional to their wavelength.
7. The Principle of Nominality – A specific, nominal collection of harmonically related waves is common to all price movements.
8. The Principle of Variation – The previous four principles represent strong tendencies, from which variation is to be expected.

In essence these principles define a theory which describes the movement of a financial market as the combination of an infinite number of 'cycles'. These cycles are all harmonically related to one another (their wavelengths are related by small integer values) and their troughs are synchronized where possible, as opposed to their peaks. The principles define exactly how cycles combine to produce a resultant price movement (with an allowance for some randomness and fundamental interaction).

Name of Cycle (nominal)	Av. Wavelength (Days)	Av. Wavelength	Harmonic Ratio
972 year *	353,548.8	968.22 years	3 x 1
324 year *	117,849.6	322.74 years	2 x 1
162 year *	58,924.8	161.37 years	3 x 1
54 year *	19,641.6	53.79 years	3 x 1
18 year	6,547.2	17.93 years	2 x 1
9 year	3,273.6	8.96 years	2 x 1
54 month	1,636.8	53.77 months	2 x 1
18 month	545.6	17.93 months	3 x 1
40 week	272.8	38.97 weeks	2 x 1
20 week	136.4	19.48 weeks	2 x 1
80 day	68.2	68.2 days	2 x 1
40 day	34.1	34.1 days	2 x 1
20 day	17	17 days	2 x 1
10 day	8.5	8.5 days	2 x 1
5 day	4.3	4.3 days	2 x 1
2 day	2.2	2.2 days	2 x 1
1 day	1.11	26.67 hours	2 x 1
5 hour	0.22	5.3 hours	5 x 1
160 minute	0.11	160 minutes	2 x 1
1 hour	0.037	53.3 minutes	3 x 1
30 minute	0.018	26.67 minutes	2 x 1
15 minute	0.009	13.3 minutes	2 x 1
7 minute	0.0045	6.6 minutes	2 x 1
3 minute	0.0023	3.3 minutes	2 x 1
* Ahmed Farghaly, 2015 (eg.linkedin.com/in/ahmed-farghaly-a5825637)

 

These eight simple rules distinguish Hurst’s theory from any other cyclic theory. For instance most cyclic theories consider cycles in isolation from each other, and cycles are often seem to 'disappear'. By contrast cycles never disappear according to Hurst’s theory, but they may be less apparent because of the way in which cycles combine. It is the fact that Hurst’s theory stipulates that there are an infinite number of cycles that makes it particularly different, and also begins to explain why it is impossible to forecast price movement with 100% accuracy. Just as it is impossible to conceive of the sum of two infinite numbers, it is impossible to define the result of combining an infinite number of cycles.

 

Reference:

J.M. Hurst (1971) - Profit Magic of Stock Transaction Timing.
CycliTec Training Course (1975) - J. M. Hurst Cycles Trading Course.

David Hickson (2023) - How The Markets Work.

 

DAX Cyclical Analysis │ Cyclic Vibrations

Source: Cyclic Vibrations (Feb 25, 2017)

DJIA vs 18 Year Cycle | Cyclic Vibrations

Ahmed Farghaly (Nov 16, 2016) - The peak of the 18 year cycle should be
expected sometimes in late January early February 2017 (see also HERE)

The Pattern of US Bankruptcies | Cyclic Vibrations

Ahmed Farghaly (Oct 22, 2016) - I found an interesting pattern in the Gold Miner's index. I realized that at the beginning of the previous two Kondratieff waves the US had defaulted on their obligations. This is the reason why a human brain is superior to spectral analysis, we tend to spot patterns earlier. In 1933 the US Treasury was official declared bankrupt after the emergency banking act was voted into law by congress. "The Emergency Banking Act succeeded in abrogating America’s gold standard and hypothecated all property found within the United States to the Board of Governors of the Federal Reserve Bank." This bankruptcy occurred after world war one as visible on the picture above. The Vietnam war was the culprit of the second American bankruptcy with the closing of the Gold window in 1971 by president Nixon. So much money was printed to fund the war that there was no way the US could redeem holders of US dollar with Gold at the pegged rate of $35 an ounce. We once again have the same pattern recurring at the time of writing. We had the Iraq/Afghanistan war the debt of which has become to big of a burden to service and history will once again repeat with yet another bankruptcy in a few short years. This will obviously have a devastating impact on the entire world since US Treasuries are the largest single asset that people own world wide. I wonder how China will react to such a bankruptcy but I guess only time will tell. I am so certain that this is going to occur not only because of the pattern that we see on the Gold Miner's index but that of Donald Trump's upcoming presidency. 

I analyzed all the similar cyclical circumstances and under all of them the president of the United States was a republican. Those cyclical circumstances include 1861, 1881, 1971 and 2001. This gives us reason to believe that without question the next president of the United States will be Donald J. Trump. We can also look at Hillary Clinton's history to discern if she is likely to make it to the White House. First, We know that the similar cyclical circumstance in terms of the 54 month wave saw Hillary Clinton lose in the primaries against Obama. We also know that she lost against Obama once again in the similar cyclical position in terms of the 9 year cycle. We also know that she left the White House in the similar cyclical circumstance in terms of the 18 year cycle. Now that we are certain that Donald J Trump will win the election we can combine that with what we have discerned from the Gold Miner's index with his history of Bankruptcies. Donald Trump filed for bankruptcy a total of 6 times the last of which was in 2009. W.D. Gann said that the highest correlations occur with the most recent similar cyclical circumstance. The 2009 low is expected to reoccur in 2017 and hence we can expect a bankrupt United States government before the end of next year or the year after at the latest.

Trump's plan for his first 100 days in office (HERE)

German DAX: Gloom, Boom and Doom | Cyclic Vibrations

Ahmed Farghaly (Oct 02, 2016) - There is no question in most commentator's minds that the growth in Germany has certainly slowed relative to what this great country has enjoyed in the 20th century […] The reason for my post about Germany is because the first domino to fall in the upcoming financial calamity seems to be Deutsche Bank […] The upcoming calamity is not going to be like 2008 which was merely a correction of the 18 year cycle. The decline is likely […] of the 324 year cycle and will make 2008 seem like a tiny little hick up within the unraveling of a much larger cycle correction.

[…] The German DAX is likely to not only decline but have an outright collapse of a magnitude not witnessed in our lives. The S&P/DAX ratio is in favor of the S&P which suggests that we are likely to see a larger decline in Germany. 

German Stocks In Trend Limbo
Source: Dana Lyons' Tumblr.

Dubai Financial Market Index: 70% Decline Expected | Cyclic Vibrations

Ahmed Farghaly (Oct 01, 2016) - As visible the immediate projection for the Dubai Financial Market General Index (DFMGI) is a similar catastrophe as 2008! This would mean that the money to be spent on the new projects and on the infrastructure for the Expo 2020 is certainly not enough to keep the economy going. Our conservative projection is a 70% decline from current levels despite all the money being spent. The world expo in Dubai will occur at a time when the global economy will be at distress and hence revenues will likely not make up for the costs of hosting the event and will most likely lead to another Dubai debt crisis. 

 

In April 2006 Elliott Wave Financial Forecast presented the above close-up of two "Skyscraper" tip-offs [Malaysia's Petronas Towers and Taiwan's Taipei 101] and wrote: "Everything points to a similar fate in Dubai", and that Burj Dubai would "open its doors in the aftermath of the bull market that gave rise to its creation".

DJIA: Bullish Into Q1-2 Next Year | Cyclic Vibrations

Ahmed Farghaly (Aug 19, 2016) - I am expecting a peak [in the DJIA] in the first-second quarter of next year [2017] and I believe it will be the peak of this century [...] Volatility will likely make a new historic high once the peak is realized as will be presented shortly. Let us first look at the DJIA from an Elliott wave perspective: 

Enlarge

I believe that we are terminating an impulsive advance from an Elliott wave perspective, this impulsive advance is the fifth wave of grandsupercycle degree [...] Another scary aspect of the chart above is the extended fifth wave that occurred from the lows in 1974 to where we stand today. R.N. Elliott warned about what usually occurs after a fifth wave extension since it is usually followed by a crash. Once we look at the projection lines we will notice such an outcome is highly likely based on our volatility forecast. The target for the correction after a fifth wave extension is the range of the second wave which brings us to the 1000-770 price range. Such a forecast for the Dow is certainly scary and I am not brave enough to make such a cataclysmic call which is why I will wait for the patterns to unfold to obtain more accurate price targets. It is important to know that the US stock market is likely to be the out-performer as indicated in one of my previous posts (The American S&P and German Dax ratio) in which I analyzed a ratio of the DJIA with the German DAX. If such a target is expected in terms of the DJIA one can only imagine what will occur to the European indices. I still prefer a German DAX short once the peak is in since one will make money from a higher EURO and a larger percentage drop. Let us now take a look at the shorter term wave count.

The shorter term wave count suggests that the DJIA is in its fifth wave of intermediate degree to terminate the primary degree rally from 2009 which will in itself terminate a cycle degree advance that started in 1974 which will itself terminate a supercycle degree advance that started in 1932 which will itself terminate a grand supercycle degree move that started in 1784. The cycles mentioned on many previous posts on this blog support that fact. I believe that such a large and historic top will end in weakness rather than strength. This is why I am preferring an ending diagonal scenario for the fifth wave of intermediate degree. I am certain that the correction that is about to unfold will be the largest correction in US history. This is a time to be cautious from equities and to try our best to avoid the calamity.

The first chart below presents an overlay of the 1920s bull market with the one seen since late 2011. Both bull markets occurred under a similar cyclical circumstance hence their high correlation (9 year cycle). The correlation is almost 80%! This projection line suggests that a peak is likely in the first quarter of next year. This conclusion is supported by a projection line of the 18 month cycle that started in 1971 which is presented below.

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The correlation of the 18 month cycle of the early 70's bull market while gold was selling off is very high and similar to the bull market that started early this year (middle chart above). They both occurred under a similar cyclical circumstance and hence their 80%+ correlation. Both indicators are bullish going into the new year and suggests that the current 'worst' part of the year is likely to disappoint those that strictly follow the annual cycle as it has proven to do so already.
 
The third chart above shows my volatility projection as well as the projection line of the late 20's. The volatility indicator was obtained from two 9 year cycles of a similar cyclical circumstance to where we stand today. The volatility projection suggests that the crash is likely to be drastic going into the low that is expected in 2020 which is when peak volatility is expected.

The British Pound's 100-Year Debasement & The City's China Wild Card

Bloomberg (Jul 5, 2016) - Sterling first slumped after coming off the gold standard in 1931 in which it had been overvalued, just as it was in 1944 when it joined the Bretton Woods system of managed exchange rates. Another 30 percent devaluation was swallowed in 1949 and then Wilson sanctioned another drop in 1967 amid Britain’s balance of payments crunch. While the IMF was called in to help avoid a sterling crisis in the 1970s, it fell again in the early 1980s. 

UK Equity Markets Dip Below 5%.
Source: Bespoke (Jul 5, 2016)

The U.K. joined the Exchange Rate Mechanism, a precursor to the Euro, in 1990 but was forced out just two years later because it couldn’t sustain a link to the Deutsche Mark. Now there is speculation that life outside the EU will cost the pound its place in the top tier of reserve currencies. It currently accounts for 5 percent of foreign exchange reserves, according to the IMF. A weaker currency may not do that much to prop up the U.K. economy. While it should boost manufacturing and tourism, three-quarters of the economy is dependent on services such as finance and their future is subject to whatever access to the EU the British government can negotiate. There are also

British Pound Sterling (GBP) to Chinese Yuan Renminbi (CNY)
Source: www.xe.com

structural weaknesses leaning against the pound. The U.K. ran a near-record current account deficit of 6.9 percent of output in the first quarter and is suffering from weak productivity. Demand remains weak abroad and prices may not be that sensitive to swings in the exchange rate because producers still rely on foreign components for their goods.

Thierry Meyssan (Jul 04, 2016) - The Western Press keeps repeating the same message – by leaving the European Union, the British have isolated themselves from the rest of the world, and will have to deal with terrible economic consequences. And yet, the fall in the Pound could be an advantage within the Commonwealth, which is a far greater family than the Union, and present on all six continents. Famous for its pragmatism, the City could quickly become the international centre for the yuan and implant the Chinese currency in the very heart of the Union [...] The London Stock Exchange announced an agreement with the China Foreign Exchange Trade System (CFETS), and, in June, became the primary Stock Exchange in the world to rate Chinese treasury bonds. All the elements were in place to transform the City into a Chinese Trojan Horse in the European Union, to the detriment of US supremacy.

Ahmed Farghaly (Jul 6, 2016): GBPUSD: Contradicting the EUR

New Insights in Commodities | Cyclic Vibrations

Ahmed Farghaly (Jul 1, 2016) - The first chart is a synthetic chart of commodities. The way it was constructed was by isolating the second 18 year cycle of three 54 year cycle. The reason why I extracted the second 18 year cycle is because this is the cycle we are in right now in terms of commodities hence it should be correlated more with its counterpart in past 54 year cycles. I have also altered the length of the cycles to match the current average length of the 18 year cycle which is approximately 14.4 years. I then combined those cycles together in order to get a continuous series so I can isolate the cycle via spectral analysis and run neural network models on this particular position of the Kondratieff wave. The indicator that you see above is a neural network model with an 14.4 year cycle used as an input and the detrended zigzag as the output. This indicator's turning point should mimic those in the future provided that no significant changes occur to the length of the nominal 18 year wave. The second chart depicts the dates more clearly.

It is worth mentioning that the 14.4 year cycle with 4 harmonics was used as the input rather than just one harmonic, the reason for this was to aid us in depicted the peaks and troughs of the cycles smaller than the 14.4 year wave. As is visible on the chart above, we seem to have a clear path in the CRB index until late 2017. The projection also suggests that 2018 is likely to be a bad year for commodities. This correction should then be followed by a move into 4th quarter of 2020 followed by a correction to 2022 and so on (third chart).

In the neural network model below the price chart is an up percentage move indicator (fourth chart). It is calculated by having the cycle as an input and measuring the position of moves of over 7% a month and projecting something similar for the future of the current cycle. The likelihood of large percentage months on a closing basis is greatest from here going into mid 2019. Hence capital is best allocated in the commodity market now rather than chase the move after most of the large percentage gains have already been realized (fourth chart).

This indicator (fourth chart) is a forecast of the volatility index indicator using the same input as the charts above. It seems evident that the likelihood of high volatility is greatest from now going into 2020. This would mean that the purchase of call options are likely to be a better play than their sale in the upcoming environment. Trading in expectation of low volatility will probabalisticly lead to a loss going into 2020.

The 162 Year Cycle | Stocks and Commodities since 1555

Stock Prices 1509 to date | Video | Enlarge Chart

Ahmed Farghaly (May 18, 2016): "[...] The chart starts at the millennial low in 1555 and what followed is an absolute beauty. The way I first discovered the 162 year cycle was through drawing a trendline between two consecutive lows of the 54 year cycle. The lows I chose were that of 1842 and 1896. A break of such a trendline would suggest that a larger cycle has turned and indeed the trendline was broken in the 1929-1932 crash. This gave me a hint of the presence of a 162 year cycle. I assumed it was a 162 year cycle since the first 54 year cycle chosen to draw the trendline was a rally off of a bear market that lasted 64 years hence It was the ideal starting point. I then confirmed my hypothesis by looking at wheat prices and eventually commodity prices which made me conclude that the 162 year cycle's presence is no longer a hypothesis, it is a fact. The combined chart that [at left] is further evidence to its presence. Notice how nicely the first 324 year cycle subdivided into two 162 year cycles. The 162 year cycle trough was precisely in the middle of this 324 year cycle. If you look deeper into the picture you will notice that both 162 year cycles subdivided into three 54 year cycles supporting our conclusion that the Kondratieff wave is the third harmonic of the 162 year cycle. After the trough in 1784, we had three 54 year cycles that ended with the crash of the late 1920s which marked a trough of the 162 year cycle. What followed was the greatest bull market in modern history and it is unfortunate that we are close to its terminus. The peak of the last 324 year cycle occurred in the third 18 year cycle of the second 54 year cycle of the second 162 year cycle which is a position that we are in today. The likelihood of further translation than the previous 324 year cycle is slim considering that the force of the 972 year cycle has leveled out since the 1930s. 

The Elliott Wave structure is certainly interesting as well, what jumps out of the chart is the fact that we had a fifth wave extension in terms of the entire advance since 1784. What is even more interesting is the fact that the move from 1932 also sported a fifth wave extension. There is a very strong guideline in the wave principle that states that fifth wave extensions are typically followed by crashes. If one wants to search for examples commodities are a great place to start. The reason why commodities have dramatic crashes is because they follow a fifth wave extension. The guideline suggests that we can expect the decline to make it to the wave two of the fifth wave extension which would be below 1,000 on the DJIA. The fact that the 324 year cycle correction is due at this current point in time certainly supports this conclusion. Here is an example of a crash following a fifth wave extension [...]" More HERE + HERE

EUR/USD Long-Term Low

Ahmed Farghaly (Nov 18, 2015) - EUR COT Analysis: Historically highest net long positions of commercial traders at the Euro low in March 2015
suggest that a Major Bottom in the Euro is in, and a 7.6 Year Rise of the Euro is about to start (chart HERE).

HERE

Ahmed Farghaly (Nov 19, 2015) - 15.23 Year Cycle in EUR/USD