Cycle Trading

Stocks broke out to a new high on Monday. So let’s take a closer look at both the daily and weekly cycles.

Stocks peaked on day 30. Stocks then formed a swing high and broke clearly below the daily cycle trend line to print its lowest point on Thursday, day 32. That placed stocks in the early part of their timing band for a daily cycle low. Normally a daily cycle decline lasts 7 to 15 days which causes the RSI to become oversold. But with stocks in a daily and weekly uptrend, this may be all the correction we will see for the daily cycle decline. Therefore we will label Monday day 2 for the new daily cycle.

The weekly cycle peaked on week 17 and then printed its lowest point on week 21. That does place stocks in their timing band for an intermediate cycle low. But week 21 lacks 2 key things that normally accompany an intermediate cycle low.

The first thing is that stocks did not print a failed daily cycle as it declined into the week 21 low. The other missing criteria is that the weekly RSI did not get oversold. Normally a decline into an intermediate cycle low sees the weekly RSI become oversold. There is one more troubling thing about labeling week 21 as an ICL and that is the bearish divergences developing on the oscillators. Stocks are at an all time high but the bearish divergences suggests that decline into the ICL still needs to occur. So unless I see compelling evidence develop I will label this week as week 28 for the intermediate equity cycle.