Cycle Trading

The Dollar

I think that the dollar threw a curve ball this week.

After peaking on day 8 back on March 1st, the dollar began its daily cycle decline. The dollar formed a swing high, broke below the daily cycle trend line and turned the 10 day MA lower to confirm the daily cycle decline.

The dollar printed its lowest point on day 18, following the day 8 peak. The dollar formed a swing low and broke above the declining trend line to signal a new daily cycle. The dollar also managed to close above both the 10 day MA and the 50 day MA, which managed to turn the 10 day MA higher to provide further confirmation that day 18 hosted the daily cycle low. But then the dollar through a curve ball.

All of the elements are there confirming a new daily cycle. But then the dollar lost both the 50 day MA and the 10 day MA on Thursday to form a swing high. This lack of bullish follow through makes it appear that the dollar is continuing the decline that began on March 1st. Instead I think that the new daily cycle peaked on day 3.

Part of my reasoning is that if day 18 was not a DCL, then Wednesday would have been day 21 instead of day 3. I just do not think that the dollar would be closing above both the 50 day MA and the 10 day MA while it is its timing band for a daily cycle low. It makes more sense to me that rallying out of a daily cycle low gave the dollar “fresh legs” to break above these two significant moving averages. Keep in mind that the big picture for the dollar is that is has begun its 15 year super cycle decline to confirm that it is in a bear market. Therefore going forward surprises tend to be bearish surprises. And I think that the dollar delivered a bearish surprise on Wednesday by losing both the 50 day MA and the 10 day MA.

So breaking below the day 18 low forms a failed daily cycle. I believe that gold’s bullish response to the dollar breaking lower this week aligns with this view. Therefore that makes Friday was day 6 of a new, failed daily cycle. Closing below the lower daily cycle band begins a daily downtrend and indicates that the dollar has begun an intermediate cycle decline.

Stocks

Stocks were rejected by the convergence of the 10 day MA and the 50 day MA to send stocks into their daily cycle decline.

Stocks broke below the lower daily cycle band on Thursday and delivered more bearish follow through on Friday. Closing below the lower daily cycle band establishes a daily downtrend . It also indicates that stocks are extending their intermediate cycle decline. Therefore stocks will need to break below the previous daily cycle low of 2532.69 in order to complete their intermediate cycle decline.

Stocks may find support at the 200 day MA. There was also a Buying on Weakness number. So we may see stocks bounce here. But I suspect that it will be a counter trend bounce which will establish the declining trend line.

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