I know that I tend to bang on a bit about the FLD (Future Line of Demarcation), but it is an extraordinarily important line. When I saw this tweet on Wednesday I knew that we were at an important level in the markets:
To understand just how important, here is a chart showing that the 40-week FLD has provided support for the past two and a half years:
The only time that the support has been breached was when price dropped into the 18-month cycle trough of October 2014.
Should we expect the 40-week FLD to continue to provide support? I don’t believe so, in fact I think it is very likely that the 40-week FLD will soon be broken to the downside and will then provide resistance until the next 18-month cycle trough, which I expect to occur early next year.
For those of you familiar with the sequence of price and FLD interactions that informs the FLD Trading Strategy, here is that sequence with the 40-week FLD:
There are several points to make about this:
- The A-category interaction is where the 40-week FLD provided support to price in November 2012. It is an unusual A-category interaction because there is no price cross over the FLD, but it is not an impossible A-category interaction. It is an indication of the strength of the bull in the markets at that time.
- The B-category interaction (which occurs as expected at the time of the 40-week cycle trough) is a perfect example of price finding support at the level of the FLD, followed by the C-category interaction where price bounces off the support of the FLD.
- The D-category interaction (also as expected at the time of the 18-month cycle trough) is a cross down below the FLD as expected, but it does not fulfill its target to the downside before bouncing up, another indication of the bullish underlying trend. The fact that price drops further below the FLD than it did in November 2012 indicates that bull is beginning to weaken.
- The E-category interaction gave us a good run up to the second peak of the M-shape of the entire A-H sequence.
The next interaction is of course an F-category interaction which is a strong cross down below the FLD. This is why I don’t expect the FLD to continue to provide support. After that price cross to the downside the FLD will provide resistance until the next 18-month cycle trough.
It is a further indication of the weakening of the bull that the 40-week FLD has been tested more frequently recently:
That is likely to continue as each fall in price comes down harder onto the support. Soon the 40-week FLD will be breached, and we will remain below the FLD until early next year.
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Tweet: Here’s why I’m watching the Hurst Cycles 40-week FLD in the S&P 500: http://ctt.ec/qkl6D+
4 thoughts on “An Important FLD”
David,
Looking back to July of 2010 the start of the final 18 month cycle of the 54 month cycle that ended in November 2012 shows that the F sequence did not fall below the 40 week FLD. What makes you say it will go below the FLD. Another thing I think I have mentioned before. Why are projections calling for higher highs here if VTL criteria suggest we have seen the highs of the 40 week cycle. Futures highest closing level was on 03/02 @ 2114.00 with Friday’s close not much below that @2108.50. Price penetrated the 20 week VTL several times over the past week and closed below it on 05/06 and the medium price level fell below it on 05/07. How much weight or probability would you say one can give to price not moving above current levels. This seems like distribution occurring now but price volatility is surely making one have second thoughts about whether price can still push higher from here especially after the last two day move higher. I just wanted your thoughts after the events since last Wednesday’s low. when it seemed we would push lower and not rally back to the highs.
Hi Jeffrey. The 18-month cycle that ended in November 2012 was an unusual cycle in my opinion, in that it remained above the FLD. It was an exception rather than the rule. This was probably because that cycle trough was part of the “mid-channel pause” of a much longer cycle (18-year cycle perhaps). We also have the 3:1 harmonic ratio between the 18-month and 54-month cycles which complicates things a bit. I might have over-simplified things, but my expectation is that price will drop below the 40-week FLD and stay below it until the next 18-month cycle trough, because the bull is showing signs of weakening in my opinion.
The question of whether there will be a new peak or not is an interesting one. Strictly speaking we shouldn’t see new highs, but I have found this the least reliable of Hurst’s guidelines, and so it wouldn’t be a very big surprise to me personally to see higher highs, perhaps only in some markets, creating a fractured market situation.
With regard to the projections, there are several factors that are calculated per cycle (FLD, VTL, displaced moving average, multiple FLD patterns, changing amplitude combined with the raw cycle output …). You are able to display all that information for each cycle independently, because sometimes the cycle information is contradictory. Putting the information together is a part of the “art” of analysis.
Sentient Trader is the tool, but the analyst needs to be the artist!
William,
Can you update us in the 10 week wave please?
Done!