Cycle Trading

Divergence image from : http://patipatkan.blogspot.com/2011/05/divergence.html

Tonight I want to look at some divergences that are developing on the True Strength Indicator, starting with the dollar.

The dollar printed a failed daily cycle low last week. The subsequent rally has been weak and reinforces what we discussed this weekend about this is likely only a new daily cycle and not a new intermediate cycle.

Day one is the current daily cycle high. Since then the dollar has drifted lower for the past two days. This is week 18 of the intermediate cycle and our expectation is to see this daily cycle roll over on or before day 8. The bullish divergence developing on the True Strength Indicator suggests the dollar will make one more push higher before rolling over.

The Miners printed a higher high today. Monday was day 18 for the daily Miner cycle. And while the Miners are printing higher highs, the True Strength Indicator has been going lower. The Miners are in their timing band for a daily cycle low. A swing high and a break below the daily cycle trend line will confirm the daily cycle decline.

Stocks also printed a higher higher today. In fact the SPX printed an all time high. But stocks could not hold on to the high. There has been a bearish divergence developing on the True Strength Indicator which indicates that stocks should still decline into at least a half cycle low before going higher.

After peaking on day 22 bonds declined into a 29 day right translated daily cycle low. Our cyclical expectation for right translated cycles is to go on to print a higher cycle high during the next cycle. So far since the day 29 low, bonds have been drifting sideways. There is a bullish divergence developing on the True Strength Indicator that indicates we will see a bullish break for bonds.