Cycle Trading

Even though stocks closed lower today, stocks continue to close above the upper daily cycle band which indicates that stocks are still in a daily uptrend. However, there are some signals developing that concern me an intermediate degree correction is near.

The first concern is that stocks are in the 3 rd daily cycle for the current intermediate cycle. Intermediate cycles usually are comprised with 3 – 4 daily cycles. The fact that this is the third daily cycle should have us suspicious that this daily cycle could roll over into a failed daily cycle.

The second concern is that stocks have seemed to stall out after emerging from its 34 day, daily cycle low. The previous daily cycle formed as a right translated daily cycle. Therefore our cyclical expectation is to see this new daily cycle print a higher daily cycle high. If stocks fail to break above the previous daily cycle high, that would be a clear signal that a larger degree, intermediate correction is unfolding.

A third concern is that stocks have formed a bearish crossover on the True Strength Indicator with the intermediate cycle trend line being close by. Sometimes a bearish TSI crossover only leads to stocks forming a half cycle low. But with the intermediate trend line being so close by, a clear and convincing break of that trend line would indicate that a larger degree, intermediate correction has begun.