Cycle Trading

Stocks formed a swing low on Monday.

The decline into the day 29 low only managed to breach the daily cycle trend line. It did not turn the 10 day MA lower, so there is a question in my mind if day 29 was a DCL. But since day 29 is only one day shy of the normal timing band for a DCL it is certainly possible that day 29 was a very mild DCL. Therefore since Monday’s swing low formed above the lower daily cycle band it delivers a cycle band buy signal.

But the Russell Small Cap Index sends a different message.

Monday was day 44, placing the Russell deep in its timing band for a DCL. Therefore a swing low has a good chance of marking the DCL. But notice that the Russell has closed below the lower daily cycle band 3 out of the past 4 days. Even though a peak on day 24 indicates a right translated daily cycle formation, closing below the lower daily cycle band signals an end to the daily uptrend and the start of a daily downtrend, which is an early warning of an impending intermediate cycle decline. So once the Russell forms a DCL we will be watching for signs of a left translated daily cycle formation.