Cycle Trading

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The S&P and the NASDAQ both broke below their previous daily cycle lows today, producing failed daily cycles. They join the Russell, which failed in late September.

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A failed daily cycle leads to an intermediate cycle decline.

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The current intermediate equity cycle peaked on week 6. A weekly swing high formed on week 7 and a trend line break occurred in week 8. There was a clear and convincing bearish follow through last week. Today saw stocks break below the 50 week MA. Stocks also broke below the previous weekly low today confirming a yearly cycle decline. With the weekly cycle count at 10 weeks there is time for one to two more failed daily cycles before an intermediate cycle low is due.

However, the Buying on Weakness numbers have me wondering if something more significant is occurring.

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There has been over 2.23 Billion Buying on Weakness since this daily cycle peaked on September 19th. I commented last week that we were seeing the type of BOW numbers usually seen at intermediate cycle lows. With today’s BOW of 500 million I decided to check.

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There was 1.48 billion in Buying on Weakness that printed going into the August intermediate cycle low. So already the BOW numbers for this decline has surpassed the the decline into the previous intermediate low by over 50%, which is significant. So I decided to compare the BOW numbers to the last yearly cycle decline.

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The last yearly cycle decline occurred in June, 2012. The BOW numbers that printed as stocks declined into that yearly low was 1.12 billion.

So the BOW weakness number that we have seen so far is over double that of the previous yearly cycle decline. At day 46, the daily cycle is currently late in its timing band to print a daily cycle low. I suspect that we will see a daily cycle low form this week. While stocks still have another 8 – 12 weeks before an intermediate low is due the BOW numbers seem to indicate an intermediate low is at hand.