Cycle Trading

It seems that the market used Bernanke’s speech as an excuse to drive the dollar down below the 81 level in one final panic move.

Since the dollar has yet to break above the declining cycle trend line, this new move lower negates the low set on 8/23. The dramatic reversal off the lows leaving behind the long lower tail signals that today was likely the daily and quite possibility the intermediate cycle low.

The following needs to happen to confirm today as the daily cycle low.
1) The dollar now needs to break above 81.72
2) The dollar then needs to break above the declining cycle trend line.

The dollar’s weekly cycle printed a lower low this week extending the intermediate cycle to week 17.

With the dollar’s daily cycle getting stretched now to day 31, we will certainly see a new daily cycle begin next week.
This new daily cycle will also signal a new intermediate cycle. That is because the same parameters necessary to declare a new daily cycle are identical to the criteria necessary to declare a new intermediate cycle.

The following needs to happen to confirm a new intermediate cycle.
1) The dollar now needs to break above 81.72
2) The dollar then needs to break above the declining cycle trend line.

The plunge that the dollar saw on Friday caused the yearly cycle to form a swing high.

Now it is too early to determine if this monthly swing high signals the beginning of the decline into the yearly cycle low or not.

However, a yearly cycle decline cannot begin without a monthly swing high.
With the three year cycle standing at 15 months, a yearly cycle decline holds the possibility of also continuing into a three year cycle low. A break below the rising (red) trend line would signal a yearly and three year cycle decline has begun.

Stocks

Following the dollar’s big drop, equities managed to break above the declining cycle trend line. As the dollar recovered, stocks closed off of the intraday highs.

Stocks actually formed a swing low today. But a daily cycle low at day 27 is early for the normal timing band for a low. Coupled with the fact that the dollar will very likely rally next week has me thinking that the daily equity low is still out in front of us.

Should a new daily cycle for the dollar begin next week, that will continue to pressure equities. A new dollar cycle can rally for 15 – 20 days which likely cause stocks to form as left translated and possibly print a failed daily cycle.

A failed daily cycle for stocks would herald an intermediate cycle decline.

Stocks currently are on week 12. If in fact a new daily and intermediate dollar cycle begins next week, that will likely cause stocks to seek out their intermediate cycle low. The weekly chart already has a weekly swing high printed. A break of the weekly cycle trend line would confirm the intermediate cycle is in decline.

The yearly equity cycle still has two interpretations.

August is either month 2 or month 10 of the yearly cycle.
Should the monthly swing high on the dollar continue and develop some follow through and have a break of the rising three year trend line, then I would be inclined to view August as month 2 of a new yearly cycle.

Should the monthly dollar reverse higher, negating the swing high, then August being month 10 with a yearly cycle decline in front becomes the more likely scenario.

Gold

The yellow metal shined brightly on Friday.

Our framework was calling for to be in the latter stages of its timing band and ready to print a daily cycle low. So what happened?

Let’s take a look.

Well for the past 6 days gold appeared to be ready to move down into a daily cycle low. The formation looked more like a bull flag than a cycle decline.
IheartMrs.Seaver also observed that Gold made a lower low as well as making a new high in the same day on Friday.

I believe that the past week or so, gold was forming a mid-point consolidation.
Back on 8/15 gold formed a swing low. Since it was a day early of the normal timing band being day 17 of the daily cycle, I did not label it a daily cycle low.

Clearly Friday’s action is forcing us to reconsider.

Setting aside being a day early, the 8/15 swing low hold some characteristics of a daily cycle low.
There is a clear trend line break followed by a swing low.
This makes Friday day 12 for the daily cycle, leaving one to two weeks before gold seeks out its daily cycle low.

This was week 5 for gold’s intermediate cycle.

Assuming a right translated nature to this intermediate cycle should see gold trend higher for the next 7 to 12 weeks.

Last week we noted that gold formed a monthly swing low.
Gold’s price action cleared another important hurdle this week.
Gold broke above the declining monthly trend line declaring a new yearly cycle.

The Miners

I would like to start off here by saying that gold is the driver of precious metals.
Having said that, precious metals do not always follow in lock step.

The Miners also shined brightly on Friday.
Where gold printed a lower low and a higher high, the miners formed a swing low.

The Miners formed a clear trend line break Wednesday.
Thursday printed a lower low and Friday printed a declining trend line break along with a swing low declaring Friday as day one of a new daily cycle.

The weekly chart certainly looks bullish.

We see that the Miners printed a double bottom and are now pressing up against the 460 resistance level.
With a new daily cycle in hand, the Miners should break through the 460 resistance and target the 520 gap or possibly even the 553 gap.
This was week 5 for the intermediate cycle. The intermediate cycle usually runs 14 – 20 weeks from trough to trough. Assuming a right translated intermediate cycle should see the Miners trend higher for 7 – 12 more weeks.

The yearly cycle shows that the Miners have been coiling for the past few months.
Coiling happens at times at the end of a three year cycle which allows an asset to change its trend.
The Miners very likely printed a yearly cycle low back in May and a break of the declining cycle trend line will confirm this. But since gold has confirmed a new yearly cycle, we can pretty safely assume the Miners will do so as well.

The CRB

The CRB has been consolidating the rally out of the 8/02 low for over the past week.

Wednesday the CRB tagged the rising trend line in the ascending triangle pattern.
In a triangle pattern following the cycle peak, the daily cycle low is not the lowest point following the cycle peak but the last tag of the rising trend line.

Friday saw the CRB breaking above resistance establishing Friday as day 2 of a new daily cycle.

The CRB printed week 10 of the intermediate cycle.
A new daily cycle can see the CRB rally up to another 15 – 20 days, which would bring the intermediate cycle to 13 or 14 week .

The intermediate cycle runs 11 – 17 weeks from trough to trough which could leave room for one to two more daily cycles.

August closed out the month seeing the CRB clearly closing above the declining three year cycle trend line.
This confirms a new yearly and new three year cycle.

Bonds

Bonds ran into some resistance at the 126 level last week.
Well it looks like the market used Bernanke’s speech as an excuse to break up through that level.

I have to admit that it is tempting to label Wednesday as a day 9 daily cycle low.
But for now we will recognize Friday as day 11 for Bonds
The daily cycle usually runs 15 – 20 days from trough to trough. We could see TLT trend higher for the next week to 8 days before seeking out its daily cycle low.

While I will confess to being somewhat confused by the daily cycle count, the weekly cycle looks very clear.

A TLT printed a weekly swing low accompanied by a trend line break.
This confirms week 2 of the new weekly cycle.
Since this new intermediate cycle follows a right translated cycle, the expectation is to print a higher weekly high during this cycle.

The yearly cycle shows a swing high formed in August.

We will need to wait to see if this turns out to be significant or not.
Buy judging by the long lower tail left behind by the August candle that TLT left behind back testing the break out from the 120 level, TLT looks ready for the next leg higher.