Cycle Trading

The Dollar

The dollar broke below the previous daily cycle low on Friday to form a failed daily cycle.

Following a stretched daily cycle often times a shorten cycle will form to balance out the cycle counts. There is a potential for that to occur here. The previous daily cycle stretched to 50 days. Should a swing low form off of Friday’s low would set this scenario up. Notice the change in character for the dollar. The previous daily cycle was a punishing decline. This daily cycle was essentially a sideways consolidation, which would ease the parameters for an ICL to form. Still, the dollar is in a daily downtrend. It will continue in its daily downtrend until it can close above the upper daily cycle band.

Stocks

While there is a swing low in place, stocks have yet to confirm the new daily cycle.

Stocks printed their lowest point on Monday, following the day 27 peak. Tuesday’s swing low and close above the 50 day MA signal that day 36 hosted the DCL. A break of the declining trend line is needed for confirmation. But following Tuesday’s strong close, stocks lost both the 50 day and the 10 MA and ended the week that way. Therefore we cannot rule out that stocks will break lower.

At this point I would prefer to see stocks move lower and break below the previous DCL of 2405.70 to form a failed daily cycle and confirm the intermediate cycle decline. Should this scenario unfold then any break lower will likely be short-lived due to the daily cycle being late in its timing band for a daily cycle low. This would then create a low risk buying opportunity with stocks emerging from an ICL as it heads into one of the most bullish times of the year (Ho! Ho! Ho!).

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