Cycle Trading

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The dollar printed a huge bearish reversal on day 19 in early June. Since then the dollar has done a masterful job obscuring its intentions. But I believe that today it revealed its hand.

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Following the day 19 drop the dollar formed a swing low on day 20. Then regained the 200 MA as it continued to rally. Since a 1 day drop into a daily cycle low is so rare, we kept an opened mind to the possibility of the daily cycle stretching. Since it is also rare for a daily cycle to stretch past day 30, we needed to reconsider day 20 as the daily cycle low. We were waiting on a signal to help clarify the picture.

Losing both the 50 MA and the 200 MA last week and delivering more bearish follow through today makes it more likely that Monday was day 16 of a failed daily cycle. And a failed daily cycle signals a weekly cycle decline, which we see in the chart below.

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The weekly cycle peaked on week 4 (at the upped triangle stem). The dollar has been caught in this weekly triangle consolidation since October. While I believe that a 3 year low was left behind in May, we will not know for sure until the dollar breaks out of the weekly consolidation in a clear and convincing fashion.

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Gold has enjoyed the dollar’s daily cycle decline by rallying 13 out of the past 20 days.

At day 16 the dollar is two days shy of entering its timing band for a daily cycle low. At day 19, gold is taking advantage of the fact that the dollar has entered its primary decline by making one more push higher.

But at day 19 gold has also entered its timing band for a daily cycle low. Perhaps gold is waiting on the dollar to emerge from its daily cycle low to begin its daily cycle decline.

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The large Selling on Strength number for gold does suggest that the Big Boys are bracing for some profit taking. Gold has locked in a right translated nature to its daily cycle by printing new daily cycle high on day 19. This sets up the expectation of a brief daily decline. And then gold will be poised to break out to make a higher high.