Cycle Trading

Stocks were down again on Monday.

Monday was day 12 for the daily equity cycle. Despite printing two consecutive losses, stocks are still delivering bullish signals. The first bullish signal to point out is that stocks continue to close above the upper daily cycle band, indicating that stocks are in a daily uptrend.

Stocks just printed back to back huge Buying on Weakness days. The large numbers printed on Friday and Monday look more like the type of numbers typically seen prior to an intermediate cycle low. Historically speaking, large Buying on Weakness numbers have been followed by stocks breaking higher.

The other thing to keep in mind is that stocks are also in their most bullish time of the year.

I think what happened is that stocks emerged out of the day 60 DCL and got overheated and got too stretched above the 10 day MA. So stocks needed to consolidate the gain. The large BOW numbers are signaling bullish interest. So the take away is that stocks will remain in their daily uptrend unless they close below the lower daily cycle band. And the correct strategy in the daily uptrend is to buy the dip as we have seen with the day 60 DCL.