Cycle Trading

Stock broke out to new highs on Thursday.
Breaking out to new highs is a bullish development.
Traders may feel compelled to buy the breakout,
thinking that stocks are beginning another leg up.
Cycles tells a different story.

Thursday was day 25 for the daily equity cycle, placing stocks 5 days shy of its timing band for a daily cycle low. More importantly stocks are on week 32 for the intermediate equity cycle, placing stocks deep in their timing band for an intermediate cycle decline.

That intermediate cycle decline can unfold in one of 2 scenarios. The first scenario is for the currently daily cycle to fail, leading to stocks printing their intermediate cycle low. Stocks would need to break below the previous daily cycle low of 2808.49 to form a failed daily cycle. A peak on day 25, or later, indicates a right translate daily cycle formation. So if this daily cycle were to fail, it would likely unfold as a semi crash

The other scenario would be an improbable 6th daily cycle. A failed daily cycle is needed to complete an intermediate cycle decline. If the current daily cycle prints a higher low, then stocks would need another daily cycle to usher in the the intermediate cycle decline. This new daily cycle would need form as a left translated daily cycle resulting with stocks printing an intermediate cycle low.

Only one intermediate cycle since 2009 (19 intermediate cycles) has exceeded 32 weeks. That cycle ran 35 weeks. This indicates that in either scenario, any gains here will likely be given right back when stocks begin their intermediate cycle decline.