Cycle Trading

Stocks formed a bullish reversal on Tuesday. This has good odds of marking the daily cycle low.

Prior to Tuesday, day 40 was the lowest point following the day 26 peak. A swing low formed to signal a new daily cycle. We were waiting on stocks to close above the declining 10 day MA to confirm day 40 as the DCL — then stocks broke lower.

Tuesday was day 48 for the daily equity cycle. That places stocks very deep in their timing band for a daily cycle. Each passing day increases the odds marking the DCL. And stocks are starting to accumulate a number of signals that indicate a daily cycle low is imminent.

The first is an undercut bullish reversal. Stocks dropped on Tuesday, managing to undercut the day 40 low. Stocks were down over 2.3% intra day on Tuesday before rallying into the close. An undercut low like this typically occurs at major cycle lows. There are bullish divergences developing on the oscillators that are also typically present at cycle lows. And stocks printed a large Buying on Weakness number on Tuesday. The aforementioned indicators increases the odds that a swing low will mark the daily cycle low. A break above 2753.59 forms a swing low. Due to the proximity of the 200 day MA, a close above the 200 MA will confirm the new daily cycle.