Cycle Trading

Stocks once again broke out to new highs today. But then ended up printing a bearish engulfing candle on the day. This signals that stocks are ready to enter their daily cycle decline.

Monday was day 21 for the daily equity cycle. While a bearish reversal does not guarantee a daily cycle decline. Other sectors are syncing up which points to a cycle top.

Starting with the banking sector:

The banks did not join the broader market in making a higher high. Today they delivered a trend line break and closed below their 50 day MA signaling that a decline into a daily cycle low has begun.

Next up is the Transports.

The transports printed a lower high in March. Now the trannies have formed a swing high and been rejected by the 50 day MA which signals that they too have entered into their daily cycle decline.

And a clear and convincing signal has been sent by one of the leading sectors;
Biotech:

Biotech peaked in March. Then found support at its 50 day MA as it printed its daily cycle low. Biotech’s new daily cycle peaked this past Thursday. Today saw Biotech form a swing high and plunge for over 4%. Today’s drop also broke below the daily cycle trend line confirming the daily cycle decline.

The dollar’s daily cycle has been in decline for the past two weeks. The dollar has not broke below the 50 day MA since last July, nor printed a failed daily cycle since last May. The dollar printed a lower high in April and has just lost its 50 day MA.

The dollar broke below the 50 day MA on Friday and delivered more bearish follow through today. Monday was day 21 for the daily dollar cycle. While the dollar is in its timing band to print a daily cycle low, the dollar can still go lower for another week. A break below 96.32 forms a failed daily cycle, confirming the intermediate cycle decline.

In the Weekend Report we looked at gold’s daily cycle. We acknowledged that Friday could be day 8 of a failed daily cycle or day 27 of a slightly stretched daily cycle. But in order for for the day 27 scenario to hold, gold would need to recover quickly.

Today we see that gold did reverse and deliver a bullish day forming a swing low. We still would like to see a clear and convincing trend line break to confirm the new daily cycle.

Silver appears to have already confirmed a new daily cycle.

Often times silver leads gold out of cycle bottoms and we are witnessing that again. Silver’s daily cycle peaked on day 13. It printed its lowest point on Friday. On Monday silver formed a swing low and regained the 50 day MA. The over 4% gain on the day is a clear and convincing signal that Silver is leaving behind a daily cycle low.