Cycle Trading

After the big reversal that printed on Wednesday, stocks took a breather on Thursday.

To recap, stocks delivered a clear and convincing trend line break on Wednesday. As we discussed this morning, since stocks broke to a lower low on Wednesday we still need to see a swing low to confirm a new daily cycle. While stocks closed near the highs of the day, a swing low still has not printed. A break above 1811.08 forms a swing low.

The dollar also printed a big reversal on Wednesday. After the big reversal the dollar posted a higher high today. But the daily chart is not too different than the one posted this morning. So let’s look at the weekly chart.

The yearly low printed in June. The intermediate cycle emerging from that low broke below the June low and formed as an extremely left translated, failed weekly cycle. Since the dollar is in a failed yearly cycle, all weekly cycles should now form as left translated cycles heading into the yearly low.

So far this second weekly cycle peaked on week 3 and formed a weekly swing high on week 4. The dollar has been trending lower since and is forming a declining (black) weekly trend line. The big reversal on Wednesday has the dollar testing the declining weekly trend line.

Should the dollar break the declining trend line we will need to reevaluate our dollar frame work. In the meantime, I will remain in observation mode.