Cycle Trading

Despite stocks dropping further on Tuesday, I maintain my bullish conviction.

When stocks printed their cycle low on October, they were very late in their timing band for forming an intermediate (weekly) cycle low. Therefore the new daily cycle has very good odds of also initiating a new intermediate cycle.

The powerful thrust out of the cycle low (which was discussed here) caused stocks to leave behind 2 gaps. One of those gaps was filled on Monday. Tuesday’s lower low has positioned stocks to fill that lower gap.

Despite stocks closing lower for 4 days, there are some indicators that align with stocks emerging from their intermediate cycle low. First off, there is an emerging bullish pattern developing on RSI. Even though stocks were down for 4 straight days, RSI is not oversold. If RSI prints a reversal after testing oversold that would indicate that stocks are advancing in a new intermediate cycle.

Another indication that stocks are in a new intermediate cycle are the Buying on Weakness days that are beginning to cluster. Stocks printed another 170 million in Buying on Weakness on Tuesday. We have seen that predictive value of these BOW days rises the more these days cluster. And the additional BOW day on Tuesday brings the recent total to over 1 billion BOW.