Cycle Trading

Normally I like to start the Weekend Report discussing the dollar. Part of the reason why is because it is the world’s reserve currency and its influence is felt the world over. And the dollar rally that we have been following this week has really hammered the CRB.

The CRB

The previous week the CRB had formed a daily cycle low in the early part of its timing band.

Following an extended 38 day cycle, it is reasonable to see a shorter cycle print.

Then the dollar began to rally.

And instead of following through on the swing low, the CRB extended its sell off, dropping like a rock. Friday was day 23 and the CRB has broken below the June pivot.

This calls into question whether June was the yearly low or is the CRB now headed towards an extended yearly cycle low. My thinking right now is that this is an extended yearly cycle low. Part of my rationale is because of my expectation of the a three year low still being out in front of the dollar.

The Dollar

As we have been chronicling, the dollar has been in an intermediate cycle decline since mid-July printing 4 consecutive failed daily cycles. Until Friday, 10/25 when the dollar printed a doji candle.

Monday the dollar printed a swing low and the dollar seemed to pick up momentum as the week went on. After rallying for the past 5 days, the dollar has broke above the declining intermediate trend line confirming 10/25/13 as an intermediate cycle low.

Friday was day 5 of the new daily cycle. The dollar broke above the previous daily cycle’s peak printing higher high. This provides further confirmation of a new intermediate cycle.

Typically, the first daily cycle of a new intermediate cycle forms as a right translated cycle. Therefore we should see the dollar peak on or after day 12.

Two weeks ago the dollar printed the lowest point since July. This past week the dollar formed a weekly swing low and broke above the declining trend line confirming this past week as week 1 of a new intermediate cycle.

Next I will look at the weekly EURO chart to see if we can pick up any clues on how long we can expect a dollar rally.

The EURO peaked on week 15. The past week it formed swing high, broke lower, and stopped just short of the intermediate trend line. The EURO’s intermediate cycle has averaged between 14 and 20 weeks over the past two years. So the EURO is in its timing band for an intermediate cycle low. A look at the daily EURO could provide a clue as to when we can expect a daily cycle low.

Friday was day 12 for the daily cycle EURO cycle. The EURO’s timng band for a low is between 17 and 27 days.

So the earliest we can expect the intermediate EURO cycle to find a low will be when the current daily EURO prints a low in 1 to 3 weeks. Therefore we should see the dollar rally for another 1 to 3 weeks. And as powerful as this move has been for the dollar, a 1 to 3 week rally still fits into our framework of the dollar declining into a three year cycle low.

Stocks

Friday was day 17 of the third daily cycle of the current intermediate equity cycle.

Our expectation is for this daily cycle to form as a left translated, failed cycle that leads to an intermediate cycle decline. The bearish TSI crossover has been a fairly reliable signal of a cycle decline. However, stocks may be setting up for a bullish surprise.

As stocks sold of on Wednesday and Thursday the SPY printed close to 200 Buying on Weakness. The bull flag forming indicates that we should keep open to the possibility of stocks breaking higher.

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