Analyzing a financial market according to Hurst’s Cyclic Principles provides you with a very powerful insight into what is happening in that market, but the profit magic comes from making the correct trading decisions within the context of that analysis. I have written before about the disparity between analysis and trading, and sometimes the correct trades to make are trades in the opposite direction to that suggested by the analysis. This week provides a perfect example.
In this blog I try to discuss the big analysis picture, and in the Hurst Trading Room videos I discuss trading opportunities for the short term – generally the week ahead. I have been presenting the case here for a peak of some importance forming in stock markets around the world, and received some surprised emails in response to Monday’s Hurst Trading Room video in which I discussed a long trading opportunity in the US markets. Why was I entering long trades when the markets are forming peaks?
Of course the process of forming a peak offers many long trading opportunities as the markets rise into the series of peaks that will eventually form THE peak (because the peaks of cycles are not synchonized in stocks, peaks in price generally consist of multiple peaks). The key is to make trading decisions within the context of the analysis, and to use a tool which provides clear entry and exit levels. The most powerful cyclic tool in my opinion is the Future Line of Demarcation (FLD) defined by Hurst, and in the Hurst Trading Room I discuss trading opportunities provided by the FLD according to the FLD Trading Strategy.
The FLD is a very powerful line, and price responds to it constantly, either crossing the line, bouncing off it, or tracking along it. When price crosses the FLD it generates a target an equal distance beyond the FLD. Here are examples of the current interactions playing out between price and the FLD.
Here is the long trading opportunity provided by the 20-day FLD (the purple line) this week in the S&P 500. The projection to 1589 was fulfilled on Thursday.
Here is the same long trading opportunity in the Nasdaq. Price reached to within a few ticks of the target.
The Euro has been bouncing out of the 40-week cycle trough. The projection of this 20-day FLD price cross was expected to be exceeded because it is the first interaction betweeen price and the FLD following a trough of 40-week magnitude. Not all price and FLD interactions are equal, which is why the identification of the interaction within the sequence of expected interactions is so important.
Gold reached the target of a price cross of the 40-week FLD yesterday. The fact that Gold broke below the support level of +/- 1525 is very bearish and tilts the odds towards the September 2011 peak in Gold being of greater magnitude (54-month), as discussed previously.
30 Year US Bonds
Bonds are reaching up towards the 40-week cycle peak and have a little further to go to reach the target of the cross of the 20-week FLD. We must be wary of the fact that this target might be under-fulfilled given the bearish underlying trend.
Crude Oil shows a very good downwards FLD cross in the first week of April, the target of which was achieved and exceeded. This week Crude Oil demonstrated the power of the FLD again when price climbed up to the FLD on Thursday, and then bounced off it to the downside (the ellipse on the chart below). This is a very bearish sign, and it is likely that we will be shifting the phasing of the longer cycles to a later trough soon.
US Dollar Index
The US Dollar is finding the 80-day cycle trough as discussed last week. There is an interaction between FLD and price which provided a target of 82.30 for that trough, but it is possible that the Dollar is at a point in the sequence of FLD interactions similar to Crude Oil, and so we need to watch the next interaction very carefully. One could argue that the peak in the Dollar should be on Thursday 5 April, rather than the peak I have chosen on 28 March, but that looks like a “fundamental interaction” spike to me.
The Hurst Trading Room videos identify short term trading opportunities using the FLD, and they offer the perfect complement to this bigger picture analysis blog. You can read all about the Hurst Trading Room here.
Have a great week and profitable trading!