Cycle Trading

Tonight I want to start off by looking at the oil chart.

Oil has been in an extended sell off since late August. In the beginning of November oil appeared that it was bottoming, but still needed the whole month to consolidate the move downward.

And what I want to point out is that while oil continued lower throughout November, a bullish divergence developed on the True Strength Indicator which led to the breakout witnessed today.

Now let’s look at the daily gold chart.

Gold has been in decline since late October. Since there has been no clear and convincing trend line break, today could be day 14 or day 34. And even though gold has continued lower, there is a bullish divergence developing with the True Strength Indicator.

By the way, after the big drop on Monday, gold printed a narrow range day on Tuesday for a gain. That has dramatically eased the parameters necessary to form a swing low. And if this is day 34, then gold is due for a daily cycle low. A break above 1225.8 forms a swing low. And if the dollar rolls over soon, that will help to send gold higher.

The dollar’s daily cycle peaked on day 10 and printed the lowest point since that peak on day 23, which is right in the timing band for a daily cycle low. The swing low and trend line break has us labeling day 23 as the daily cycle low.

After the pop higher on Monday to confirm a new daily cycle, the dollar nearly gave it all back today. The dollar came with in two pennies of breaking below the day 23 low and declaring a failed daily cycle. A break below 80.50 forms a failed daily cycle, which should signal an intermediate cycle decline. Which dovetails into our expectation for the dollar to continue into its yearly cycle decline.