Cycle Trading

Something that I have been chronicling in the Weekend Report is the emergence of bonds from its yearly cycle low.

Here is am excerpt from the 3/28/14 Weekend Report.

The yearly bond cycle stands at 12 months. Bonds are in the timing band to print a yearly cycle low. A break above 119.21 forms a monthly swing low. Then we will need to see a break above the declining cycle trend line to confirm a new yearly cycle.

In the graph below I compared bonds emerging from their yearly cycle lows to the equity yearly cycle decline. You will notice a fairly good correlation with bonds emerging from their yearly cycle lows and equities rolling over into their yearly cycle decline.

This dovetails with the current intermediate equity cycle. One more daily cycle is expected, which should be a failed daily cycle leading to an intermediate cycle decline. That should occur just as the yearly bond rally begins to gain traction.

Let’s fast forward to today.

Bonds have confirmed a new yearly cycle

Bonds formed a monthly swing low and declining trend line break declaring April as month 1 for the new yearly bond cycle. Bonds also follow a three year cycle and it looks like they printed a three year low, as well.

On the daily level we see that bonds printed their yearly cycle low March 8th. That first daily cycle ran until this past Thursday where a daily cycle low printed. Bonds are now on day 2 of a new daily cycle.

I do not think that its a coincidence that bonds are now in their second daily cycle and stocks took a hit.

Stocks dropped 2.3% on Monday. Stocks stopped just short of breaching the intermediate cycle trend line. Once that occurs then equities will have entered their intermediate cycle decline.

Now stocks are in their 2nd intermediate cycle of the current yearly cycle. Yearly cycles are typically comprised of 2 intermediate cycles. Which increases the odds that stocks are about to embark on a yearly cycle decline.

Also the yearly cycle is in the timing band to seek out a yearly cycle low as annotated below.

The current yearly cycle stands on month 10 and the current four year cycle stands at month 49. A June or July intermediate cycle low would bring the yearly cycle to months 12 or 13 and the four year cycle to months 51 or 52. Certainly there is a good possibility that the impending intermediate cycle low will also host a yearly and four year cycle low.

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Now a word about gold

Gold had another big day down. However my view on gold has not changed from the Weekend Report.

Please forgive me for repeating myself from the Weekend Report

“So that only real anomaly to our cycle methodology is the current, stretched daily cycle count. Otherwise, the weekly and monthly cycle counts are within their normal parameters and we are awaiting swing lows accompanied with trend line breaks to identify new cycles.”

Once we have a break of the declining monthly trend line, then we will have a confirmed new yearly cycle. I want to wait to see how gold behaves during the first intermediate cycle before declaring that the gold bull is over.

Gold gave us plenty to worry about as it plunged into its yearly cycle low. It may not be over. But once it is and a new yearly cycle is confirmed, we should see a right translated intermediate cycle emerge in order to confirm that the gold bull is still alive. That means at least two right translated daily cycles and probably a third right translated daily cycle, as well.

So we need to see how the gold bull responds to this bear challenge …

I am going to re-open up the one month trail subscription link for the week.

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