Cycle Trading

I want to begin with the three year dollar cycle. I believe that where the dollar is in its three year cycle is exerting an influence on the other, lesser cycles.

For over the past 30 years the dollar has routinely printed a three year low on the average of every 35 months. The three year cycle peaked in July which was month 26. A monthly swing high formed in August. September saw the dollar crash through the three year cycle trend line. And November the dollar was rejected when it back tested the three year trend line. The dollar is now testing support at the 80 level. A close below the 80 level should send the dollar on its way into its three year low. As the dollar descends into its three year low our expectation is to see surprises to the downside.

The current yearly cycle peaked in month 1 – which was July. Since the dollar has already broken below the previous yearly low that printed in June, the dollar is in an extremely left translated yearly cycle. The expectation is that all intermediate cycles will form as left translated weekly cycles. And after the initial daily cycle of a new intermediate cycle, all subsequent daily cycles should form as left translated cycles.

Which brings us to the current daily cycle.

The dollar printed a left translated intermediate cycle low in October. The first daily cycle out of the October low did form as a right translated cycle. I believe that the second daily cycle printed a left translated 16 day low this past Wednesday. I acknowledge that 16 days is a tad short of the normal timing band for a low. It is also hard to ignore that 4 of the previous 6 daily cycles printed a low at 16 days or sooner.

Our framework for the dollar calls for left translated daily cycles to form heading into the next intermediate low. Left translated cycles usually peak on or before day 8.

The dollar formed a swing high on Monday which could indicate the this daily cycle has already topped. A break below Wednesday’s low of 79.75 confirms the daily cycle decline.

Meanwhile it appears as if stocks may found their footing.

Stocks printed their daily cycle high on day 36, back on November 29th. Thursday, day 45, was the lowest point since the day 36 high. Stocks formed a swing low on Monday. The odds are good that since stocks are this late in the timing band for a low that day 45 marked a daily cycle low. A break above the declining trend line confirms a new daily cycle.

So now I want to look at the Miners.

I want to point out three things about the Miners.
1) They suffered a big sell off.
2) They are currently consolidating that sell off.
3) There is a strong bullish divergence developing on the True Strength Indicator.

This reminds me of what the CRB Index looked like in late November.

Like the Miners, the CRB:
1) They suffered a big sell off.
2) Went through a consolidation of that sell off.
3) Had a strong bullish divergence develop on the True Strength Indicator.

So let’s look at the CRB Index now: