Cycle Trading

 

 
 
Friday was day 10 for the dollar daily cycle
 

 
 
The dollar peaked on day 8 and formed a swing high on day 9.
Friday saw the dollar breach the daily cycle trend line and then reverse higher.
As long as the dollar does not break above Wednesday’s intra-day high of 80.01 then the cycle decline is still in play.
A break above Wednesday’s high would indicate that a new intermediate cycle rally is unfolding.
 
Based on the Buying on Strength numbers that the SPY printed, which I‘ll detail with stocks, my guess is that the dollar will continue lower.
 
 

 
Week 2 or week 21, this week should confirm either scenario.
As discussed above, a break above Wednesday’s high puts and new intermediate cycle at week 2 in play. 
A break above the declining trend line will confirm a new intermediate cycle.
 
The 80 level has been an historic support level for the dollar.  When the dollar sliced through that level back in January, it took 15 weeks before the dollar was able to close back above that level. 
 
If the dollar is still in the grip of the intermediate cycle decline, then the dollar should be rejected by the 80 level and sell off for the next three weeks in to an intermediate cycle low.
 
The monthly dollar chart puts a new concern in play.
 

 
The dollar reversed off the 78 level.  Any follow through to the upside would have us considering if the dollar left behind a 7 month yearly cycle low in September.
The typical timing band for a yearly cycle low is 9 – 12 months.  However here is an example from 92 – 93 of a 7 month yearly low.
 

 
So, if the dollar does rally next week and confirms a new intermediate cycle, then this possibility improves, but it would not be a forgone conclusion. 
 
Stocks

 

 
 
In July equities printed a daily cycle low on 7/24/12.
30 days later equities exploded out of consolidation causing me to consider 9/04/12 as a daily cycle low. 
There was concern that at 28 days, it was 7 days shy of the normal timing band.
Secondly, the decline barely broke the red trend line.
Wednesday of this week concluded a reversal followed by an 8 day sell off.
So was this a half cycle low?  Interestingly enough Wednesday would have marked day 44 and would be right on the outer limits for the timing band for a daily cycle low.
 
I favor labeling 9/28 as the daily cycle low over 9/04 for the following reasons:
1) Normal cycle length — 9/28/12 would mark a 44 day daily cycle as oppose to a 28 day daily cycle
2) 9/28 passes the “look test” because it looks more like a DCL from across the room as opposed to 9/04.
3) The Buying on Weakness (B.O.W.) numbers point to 9/26 as being more meaningful (outlined in the chart below)
 
 

 
The above chart tracks the BOW #’s since May.
Of course you will notice the big 1038.57 BOW numbers that accumulated leading into the early June intermediate cycle low.
 
There were two groupings of BOW of 184 & 173 heading into the July daily cycle correction.
 
In retrospect the 169.84 BOW heading into 9/04 looks more like a late half cycle low
while the 668.51 BOW looks more like a daily cycle low.
 
So if Friday is in fact day 2 of a new equity cycle and the dollar takes 3-4 weeks to find its intermediate cycle low, that would bring the new equity cycle to the 18 – 23 day range.  Call me a cynic but that scenario would have stocks rallying right up until around the election, hmmm.
 
Then, as the dollar rallies out of an intermediate cycle low, that should send stocks into an intermediate cycle correction.
(Obviously, if the dollar continues to rally next week then that changes everything ans I would shift in favor of Friday being day 18)
 

 
Stocks just completed week 16 of the intermediate cycle.
If I am correct that Friday was actually day 2 for the equity daily cycle and the dollar needs 3-4 weeks to find its low that takes the intermediate equity cycle to week 19 or 20.
Assuming the next intermediate dollar cycle will form as left translated and only rallies for 3 – 4 weeks that would bring the equity weekly cycle to week 22 -23 which is in the timing band for an intermediate cycle low.
 
 

 
 
September is month 3 of the yearly cycle.
Out of the 2009 low equities rallied 553 points from trough to peak, which was almost 40 points per month.
 
Equities rallied 359 points out of the 2010 yearly cycle low.  That was about 32 points per month.
 
The 348 points out of the 2011 yearly cycle low averages about 49 points per month.
 
So far equities have rallied 208 points out of the June 2012 yearly cycle low, which averages about 52 points per month.  And the all time highs are 310 points away from the June 2012 yearly low. 
 
If equities maintain the current pace, we will break through the all time highs in less than 3 months.
 
 

Gold
 
The daily cycle for gold stood at day 2 on Friday.
 
 

 
 
The previous daily cycle peaked on the previous Friday after poking through the 1780 level.
The daily cycle low printed on Wednesday followed by a big reversal on Thursday.
Friday gold printed a higher high and once again poked through the 1780 level.
Gold did not have the energy to break above the 1780 level last week, being so late in the daily cycle. Gold has been trying to close above this level for 11 sessions. Now with a fresh new daily cycle I expect gold to break through this level.
 
 

 
 
It is no surprise to see gold run into resistance at this level.
Gold just picked up a fresh set of days with a new daily cycle.
Still, it goes back to the dollar.  If the dollar continues to rally this will likely be labeled week 19 and an intermediate cycle low can be expected.
 
Should the dollar reverse again and head lower, then this will likely be week 9.
 

 
 
Gold’s yearly cycle continues to rally.
September is month four for gold’s yearly cycle.
As we saw with the weekly cycle, gold is right up against the 1780 resistance level.
 
A break above that clears the way for a run at the all time highs.
 
The Miners

 
 

 
The Miners printed a higher high on Friday, which was day 2 for the daily cycle.
Following a right translated daily cycle, the Miners should see a higher high during this new daily cycle.
 
 

 
 
The Miners are in the same boat as gold, it goes back to the dollar.  If the dollar continues to rally this will likely be labeled week 19 and an intermediate cycle low can be expected.
 
Should the dollar reverse again and head lower, then this will likely be week 9.
 
Regardless of the weekly count, a break below the rising cycle trend line would signal an intermediate decline is upon us.
 

 
 
September was month 4 for the yearly cycle.
They now have encroached upon a pretty significant congestion zone.
Expect some volatility as the Miners work through this level
 
 
The CRB

 
The CRB gapped down and then printed a reversal candle on Wednesday.
 
 

 
 
A swing low and trend line break signals that the CRB is on day 2 of a new daily cycle
Maybe the CRB is sniffing out more dollar weakness because it printed a strong day in the face of a strong dollar on Friday.
 
 

 
At 14 weeks, the CRB is in the timing band for printing an intermediate cycle low.
After the big sell off the previous week, the CRB printed a narrower range candle that reversed into the close of the week.  This has eased the parameters for forming a weekly swing low.  A break above 309.64 forms a weekly swing low.
 

 
And with a fresh set of weeks, we will see if the CRB can break through the declining 4 year trend line.
 
 

 
 
The CRB is working through a monthly congestion zone and the declining 4 year trend line.  Should the dollar continue to rally and confirm a new intermediate cycle then the CRB will likely stall or even retest its recent yearly low.
Continued weakness by the dollar should propel the CRB through the declining trend line and usher in a new inflationary period.
 
 
Bonds

 

 
A convergence of trend lines and support levels will make the next few days very interesting.
TLT printed a higher high on Friday, piercing the declining intermediate trend line and reversing.
Bonds are in the same boat as the dollar.  Barring a very narrow range day, Monday should reveal whether this is the first daily cycle of a new intermediate cycle or the concluding daily cycle.
 
Breaking to a new daily cycle high confirms that this is the first daily cycle of a new intermediate cycle.
If TLT breaks below 123.81 it will form a swing high and likely be on its way into a intermediate cycle low.
 

 
 
I must admit that I am not comfortable when an asset class gets beyond it normal timing band.
Bonds tend to print a weekly cycle low between 12 & 22 weeks.
Should TLT be turned back by the converging declining trend line and resistance level that would mean that this is not a new intermediate cycle at week 2.
 
Then a week 26 interpretation emerges and this is where I get a little uncomfortable.  Only twice in the last 10 years has TLT printed an intermediate cycle that went beyond 25 weeks.  Both were left translated by the way.
 
A rejection by the converging trend lines may have me considering that week 21 was the intermediate cycle low.
 
 

 
The yearly cycle has peaked on month 4, formed a swing high on month 5 and had more follow through to the down side on month 6.
 
A break below the rising trend line would confirm the yearly cycle is in decline.