The FLD Pullback 9


The FLD (Future Line of Demarcation) is a cycle tool that Hurst defined – a simple line plotted on the chart after an analysis has been performed. The FLD can be used as an analysis tool, and also as an aid to making trading decisions.

Anyone who uses the FLD to inform trading decisions will quickly discover that not all FLD and price interactions are equal. Sometimes when price crosses an FLD it will result in a perfect trade, accurately achieving the target generated by the cross of the FLD, but on other occasions the trade will fail miserably with price reversing a little beyond, or at the level of the FLD and getting nowhere near to the target.

The realization that not all FLD and price interactions are equal was the germination of the FLD Trading Strategy, which recognizes that the interactions between price and the FLD follow a sequence (there are eight interactions with the 20-day FLD in every 80-day cycle).

Not only is this sequence consistent, there is also a consistency to the “character” of each interaction in the sequence. Perhaps it is my film background which causes me to see a story and characters in everything, but I have found it very useful to confirm my analysis by considering the character of the current interaction between price and an FLD.

The current interaction between price and the 20-day FLD in the US markets (and other stock markets around the world) is a category F interaction. It is the sixth interaction between price and the FLD since the trough in early August, and it usually results in a good profitable short trade as the market moves down to an 80-day cycle trough. Here you can see the identification of the F-category interaction for the S&P 500 on the Hurst Signals system:

F-category interaction

There is a characteristic of the F-category interaction that I have observed many times, and which I consider to be part of the defining “character” of the interaction. This is the way in which price “pulls back” to the FLD after crossing it. Often this occurs in the few bars (or days) after the cross occurs, in which case I consider it a “pull back”, but sometimes it occurs later, and is in fact the next interaction between price and the FLD, the G-category interaction. The character of the G-category interaction is that price will pull back towards the FLD, often touch, sometimes cross it slightly and sometimes not quite reach it. Here is the “pull back” that we witnessed this week:

The current interaction

Whether the pull back is a short term attempt to reach the FLD, or a later G-category interaction, the fact is that it is a common characteristic of the F-category interaction, and I find it useful in confirming that my analysis is correct.

There have been 10 80-day cycles in the S&P 500 since June last year (according to my analysis), and we have seen pull back moves in the F-category interaction in 9 or those 10 cycles. I will let the charts speak for themselves. Here is the first in August 2013:SP500-2 26-09-2014

Then in September 2013:

A G-category pull back

 

December 2013:

A pull back that goes a bit further

January 2014:

A classic G-category "pull back"

March 2014:

A short term pull back

Then in my analysis there was a short 80-day cycle. One of the reasons that I think this was an 80-day cycle is because of the character of the F-category interaction, with a classic pull back in April 2014:

A likely G-category pull back

In June 2014 price crossed below the FLD and dropped directly into the 80-day cycle trough without any discernible pull back (although the move into the trough was accomplished with an “up” day which could be seen as a subtle pull back – you can see that at the far left of the next chart). In July we saw two pull backs, a very short-term pull back immediately after price crossed the FLD, and a later G-category “pull back” interaction:

A short-term pull back and later G-category pull back

I find the recognition of the character of FLD and price interactions very useful for confirming my analysis, and increasing my confidence in the trades I make. I hope it is something that you will also find useful.

A quick postscript: the FLD is plotted using the current wavelength of the cycle, which is why it can only be accurately plotted after an analysis has been performed. I have extended the FLD back by a year in these charts for the sake of illustration, but you should realize that the actual level of the FLD at the time might have been different. The FLD is used for looking ahead, not really for looking back!


About David Hickson

I have been trading for over 20 years, but only had any success after discovering Hurst's cyclic principles. Unable to find any software to speed up the analysis process I created Sentient Trader software, which now pretty much does all the analysis for me. I am a film maker and a TV director, but nowadays I mostly provide consultation services to professional traders and fund managers, helping them to integrate Hurst analysis into their trading. I'm South African and live with my family in Italy.


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9 thoughts on “The FLD Pullback

  • David

    In conclusion then David, would you consider the ‘pullback’ in the US markets to be simply a pullback in category F or the G interaction itself? I am inclined to assume the former and we can expect a G-H category in the coming week or two…

    • David Hickson Post author

      Yes I think that this week saw a simple pullback, and that the G-category interaction is still coming. I am only expecting the 80-day cycle trough to form in about two or three weeks, and the G-category interaction would occur in about ten days, in a perfect market (which of course it never is!)

  • William Randall

    Nice illustration of the 20 day interactions! You stated that there have been 10 80 day cycles since June 2013. Correct me if I’m mistaken, but there are 410 days from the 6/24/2013 low to the 8/8/2014 low. These lows are also shown as 20 week lows on your charts with an average period of approximately 14.6 weeks which implies there have been 4 cycles of the 20 week wave and 8 cycles of the 80 day wave over that time period. There have been 49 days as of 9/26/14 since the 8/8/2014 low. Another 2 or 3 weeks before the next 80 day low would be a bit beyond the average period of 46 days shown in your analysis. Does this raise the possibility that 9/26/14 or next week’s low (based on an average period of 51.25 days; 410 divided by 8) may be the 80 day low or does the FLD interaction analysis take precedent?

    • David Hickson Post author

      Hi William. Yes, you are right about the number of 80-day cycles, I expressed myself badly. I should have said that there have been 10 examples of F-category interactions as price moved down into 80-day cycle troughs since June last year. That is 9 x 80-day cycles as you point out, including the current cycle. With regard to when the 80-day cycle trough is expected, it is true that it would be expected much sooner than the two or three weeks I mention in my reply to the comment above, when considering the average wavelength of the 80-day cycle in isolation. The 80-day cycle “circle-and-whiskers” shows that according to the recent average wavelength of that cycle it was expected last week (give or take a couple of weeks).
      But that trough must also be a trough of the 40-day cycle, and I think that 15 September 2014 is the most likely position of the most recent 40-day cycle, and so it is actually the next expected trough of the 40-day cycle that leads me to say I expect the trough in two to three weeks. Of course 15 September 2014 might not be the correct position for the 40-day cycle trough: if 5 September 2014 was the 40-day cycle trough then we should expect that 80-day cycle trough now (perhaps the 26th as you mention). I always think that is the genius of Hurst’s notation: when the nest-of-lows is staggered, you can see which cycle is pushing the analysis one way or the other. In the case of this analysis it is the 40-day cycle.
      The bottom line really is that we should expect that 80-day cycle trough to occur any time soon. You can see on the Hurst Signals chart that it indicates we should consider an A-category trading opportunity as a possibility, which is the first trade out of an 80-day cycle trough, and so the Hurst Signals system is thinking that trough could be coming in soon.
      As a matter of interest Sentient Trader calculates the current or recent average wavelength of a cycle by looking back only 180 bars. This is because Hurst presented all his Cycles Course charts going back 180 bars, and in my obsessive determination to replicate exactly what Hurst did, I stuck to that.

  • SilentOne

    I’d like to point out that market internals have yet to confirm the August low as a 40 week low. The strength and amplitude of the rise for US indices out of the August low are all we have to suggest this was a 40 week low. Of course confirmation and a new leg up in the $NYSI/$NASI can show up in the next couple weeks with the next 10 week Hurst cycle low. For the moment everything is neutral at best.
    cheers,
    john

    • David Hickson Post author

      Hi John. That is a very good point. My conviction about the 40-week cycle trough in August is also largely influenced by my opinion of the European markets, and the South African stock market, which I always keep an eye on. I can sometimes stretch the commonality principle a little!

    • bryan

      john,

      to assist with phasing i usually follow all 30 djia stocks. the oil stocks have been weak due to oil which is expected to form an 80 wk trough soon. cvx and xom have seen lower lows than august. mcd has also been lower. cat and utx are testing the august low. in august there was a zweig breadth thrust so for most august remains the likely 40 wk low for now, but just not for the oils. i am sure there are others as well.

      regarding the 5 week placement, in my opinion you have to look at the august low. the august low was ‘slurred’–over 5 days. some stocks bottomed 8/1, some 8/7, 8/8. the 5 week low for some was at the end of august, for others in september. thursday 9/25 was a 90 percent down day with trin over 2. these events usually mark a low if not the day, soon. so i think the next fld interaction will be cat a. i used the 90 percent down day to reaccumulate some longs. i am buying only sp500 and indu. mid,small,micro caps have been a big lag. as has junk. the micro caps are lower than the feb low. there are also dow stocks that have broken the 80 week vtl as well.

      i have appl making an 80 week in november. it did not bottom until 4/13, much later.

      bryan