Cycle Trading

Stocks broke out to new highs on Monday. We previously discussed the possibility that Thursday hosted a one day daily cycle decline. But with the Monday’s bearish engulfing candle and a divergent TSI, that makes it likely that stocks are beginning their daily cycle decline.

Monday was day 43 for the daily equity cycle. Since stocks last printed a yearly cycle low the daily cycles have averaged 42 days. Which means that stocks are in their timing band for their daily cycle low. Typically a daily cycle decline can last 7 to 15 days. However, a new high on day 43 makes this an extremely right translated daily cycle formation.

Let’s take a look at what happened the last time stocks formed an extremely right translated daily cycle back in May.

Back in May the daily equity cycle peaked on day 35, forming an extremely right translated daily cycle. Stocks only declined 2 days before it was back to the races. I am not saying that stocks will only decline for 2 days. But we need to be open to the possibility.

Stocks continue to close above the upper daily cycle band, indicating that they are in a daily uptrend. As long as a swing low forms above the lower daily cycle band, then stocks will remain in their daily uptrend.