Cycle Trading

Stocks closed below the daily cycle trend line on Thursday to confirm the daily cycle decline. Thursday was only day 23, which is 7 days shy of the timing band for the daily cycle low. So stocks could decline for another 7 to 22 days before printing their daily cycle low.

We need to observe that stocks printed a bullish reversal on Thursday, which eases the parameters for forming a swing low. We just acknowledged that stocks are likely to continue lower since they are early for their timing band for their daily cycle low but there is a reason to be cautiously bullish.

Thursday’s bullish reversal formed right at support of the 200 day MA.

Looking back over the past several years it is undeniable that stocks have been in a bullish uptrend. The only times that stocks spent any significant time below the 200 day MA was during the previous 4 year cycle declines. Since stocks are only 2 years into the current 4 year cycle, there is still plenty of time to rally higher. Therefore that shifts the odds towards the 200 day MA providing support for an early 23 day, daily cycle low. Therefore long positions can be entered on a swing low with a stop below Thursday’s low.