There are times in the markets that are more interesting than others, moments when the price action reveals its cyclic truth. This is one of those times.
To receive these blogs as soon as they are posted Join/Like/Follow Us. If you don’t do social media – click to Join Feedburner to receive these blogs by email.
Two weeks ago I discussed possible paths the stock markets of the world might take, and pointed out that we would know which option was coming to pass when price returned to the 20-day FLD. That return is happening right now, and so let’s see what it tells us. Here is the S&P 500 (ES futures contract):
Price came right down to the 20-day FLD (that purple line) yesterday and we all held our breath to see what would happen (well I did anyway). Price bounced up. Of course that small bounce is not definitive, but it is an early indication that price is finding support at the 20-day FLD. That is exactly what we expect to happen if the analysis shown here is correct (it is the analysis that I discussed last week).
But what if that analysis is not correct? There is the danger that because the FLD is plotted as a result of the analysis, there could be a self-affirming loop that develops. Here is the other possible analysis, shown here in the Nasdaq 100:
Price reached towards the FLD, but didn’t get nearly as close to it. We must watch what happens over the next few trading days, but that potential inaccuracy in the position of the FLD does indicate that the other analysis might be a better one, but it by no means negates this analysis completely. Here is a chart from our Hurst Signals service which shows the other analysis:
And for something different, here is a chart of the Euro-Stoxx 50 index:
The analysis here is different, with the trough on 3 February being of only 80-day magnitude, but here too we can see how accurate the 20-day FLD proved to be as a level of support.
We have seen only one bar of the interaction between price and FLD, and so it is too early to draw any absolute conclusions, but early indications are that the 20-day FLD is providing support, as is expected for the second interaction (the B-interaction) between price and the FLD following a trough of at least 80-day magnitude. It would be perfectly normal to see price track along the FLD for a short while here, or it might bounce cleanly up. It might conversely cross below the FLD, having provided only temporary support.
I will be watching closely over the next few days, and of course preparing for the next interaction, which (if the FLD continues to provide support) will be a cross down below the FLD. A cyclic analyst never rests!
Have a good week and profitable trading.