We have been very busy this week making information about our FLD Trading Strategy available. If you enjoy analyzing markets according to Hurst’s Cyclic Principles but wonder how you can move from analysis to trading then you absolutely have to look at the FLD Trading Strategy.
The FLD is one of the cyclic tools that Hurst defined. It is an acronym for Future Line of Demarcation, and it is extraordinary how appropriate that name is. Mostly we focus on times when price crosses the FLD, but there are as many times in the natural development of a cycle when the FLD demarcates future price movement by providing support or resistance, often with uncanny accuracy.
In honor of the public appearance of our FLD Trading Strategy I’m going to take a look at how the FLD has demarcated price action this week.
The US markets demonstrated further quickening of the pulse as discussed last week, shooting upwards until Thursday, then falling strongly on Friday. Note how the S&P 500 just poked above the 20-day FLD but then was dragged down by it. That is exactly the FLD and price interaction that one expects preceding the formation of a longer cycle trough, and we are expecting the 20-week cycle trough to form soon. I expect that 20-week cycle trough to form below the trough of Monday 15 October 2012, and must point out (at the risk of sounding like a stuck record) that I don’t expect the bounce out of the 20-week cycle trough to be as bullish as one might expect. In particular I don’t expect the bounce upwards to last for anything like half the cycle wavelength (in other words ten weeks).
The Nasdaq presents an even clearer picture of how the FLD provides resistance prior to the formation of a longer cycle trough. Here too the 20-week cycle is expected to form a trough soon.
The Euro provides a great example of the FLD in another role: that of providing support.
This sort of price and FLD interaction is often seen around the first 20-day cycle trough following an 80-day cycle trough which is exactly what is happening here.
The FLD works just as well upside down! In Gold we can see how the FLD provided support going into the peak. I expected price to stretch further above the FLD at the actual peak, but it didn’t have the strength.
As Gold forms the first 20-day cycle peak following the 40-week peak of 5 October 2012 the FLD is expected to provide resistance (an inverse of the situation in the Euro).
30 Year US Bonds
Bonds couldn’t muster any further rise, and so last Friday’s peak seems likely to be the 80-day cycle peak that we have been expecting. Note here how price didn’t even manage to get above the FLD, and the FLD perfectly demarcated the price action as it turned down from the peak.
The FLD picture in Crude Oil is not as clear as it is in the other markets we have looked at, and that in itself is useful information because it can help us to resolve the analysis. You will know that recently I have been considering two options in Oil: the possibility that the 80-day cycle trough occurred in late August and is a straddled trough, or that it formed on 3 October 2012 as presented in this chart:
The key to resolving which of these analyses is correct will be in the way that price interacts with the FLD over the next week or so. If the FLD provides support for price (as it has in the Euro) then the October trough will win the day, if not then the August trough will be confirmed, and we will expect a drop in oil prices into the 20-week cycle trough.
US Dollar Index
The FLD has provided a remarkably accurate demarcation for the US Dollar over the past two weeks, including a period of support surrounding the 20-day cycle trough, then leading price down into the 40-day cycle trough which most probably formed this week on 18 October 2012, and then acting as a magnet and pulling price up out of that 40-day cycle trough.
That’s it for this week. The FLD is a remarkably powerful tool, both for analysis and trading. If you haven’t yet discovered our FLD Trading Strategy then take a look at how the FLD can be used for trading.
Have a great week, and good trading!