Cycle Trading

The dollar’s daily cycle peaked on Tuesday, day 16. A swing high formed the next day and then Thursday the buck plummeted. With a peak on day 16, the expectation is for this daily cycle to form in a right translated manner printing a higher low. The plunge in the dollar on Thursday that saw the buck give back the gains over the last 8 sessions seems to indicate something more serious is afoot.

Then on Friday the dollar formed a bullish reversal, therefore easing the parameters for forming a swing low. Friday was day 19 and therefore the dollar has entered its timing band for printing a daily cycle low. A break above 80.55 forms a swing low.

Due to the nature of this decline, there is no declining trend line. Therefore there is no declining trend line to breach to help to confirm a new daily cycle. A clear and convincing swing low will indicate a bottom. A break of the rising extended daily cycle trend line will help to confirm a new daily cycle. If, in fact, day 19 is the daily cycle low then this would be a right translated daily cycle. Our expectation would then see the dollar print a higher daily cycle high.

Stocks

The daily equity cycle peaked on day 18. Stocks failed to break higher over the next 4 days. On Thursday stocks broke below the the daily cycle trend line signaling a daily cycle decline.

Friday stocks plunged another 2.05% demonstrating in a clear and convincing manner that a daily cycle decline has commenced. Since this is the fourth daily cycle of the current intermediate cycle, we are expecting to see a decline into an intermediate cycle low. A break below 1767.99 produces a failed daily cycle confirming the intermediate cycle decline. Friday was day 24 for the daily equity cycle. The timing band for a daily cycle low stretches from day 30 to day 45. So potentially we could see a decline for another 6 to 21 days.

As alarming as a 2.05% drop in stocks were on Friday, the transports printed an even bigger drop.

The trannies looked like they were shoved off a cliff and plunged over 300 points for a whopping 4% decline on Friday. So I was curious as to when was the last time the transports began an intermediate decline is such a manner.

Back in 2010 the trannies posted an intra-day drop of 410 points. That was part of the 2010 yearly cycle decline that saw the transports deliver a 19% decline and equities a 17% yearly cycle decline.

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Tuesday morning I shared a chart that I normally provide to my subscribers which I refer to as the FAS Buy/Sell Indicator. One of the strengths of cycle analysis is identifying cycle bottoms. Identifying tops is a bit more challenging, depending if a cycle is forming in a left or right translated manner. So I began looking for a way to help identify equity cycle tops. Through much trial and error I developed the FAS Buy/Sell Indicator.

I was quite pleased with how well this spotted equity cycle tops (daily, weekly) so I began tracking it. Strictly using the generated buy/sell signals delivered a high percentage of success. Then when decided to apply a stop loss, the success rate went higher.

So I posted the chart below Tuesday morning. The FAS Buy/Sell Indicator was delivering a series of sell signals.

The above chart shows that FAS closed at 91.55 on 1/21/14

So I thought I would update you with this week’s chart.

This week the FAS Buy/Sell Indicator delivered some clear and convincing sell signals.
FAS closed the week at 82.12 — which is down 10.33%.

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