Cycle Trading

Stocks printed a huge bullish reversal on Tuesday.

Stocks had a huge day, gaining nearly 5% on the day. There are bullish divergences on the oscillators which we often see at cycle lows. Tuesday was only day 26 for the daily equity cycle, which is early to expect a daily cycle low. But given the extreme sentiment I think that it is possible that stocks printed an early daily cycle low, which may also turn out to be their intermediate cycle low. We need to see a swing low and a close above the declining trend line to confirm the new daily cycle. Since Stocks did print a lower low on Tuesday, the earliest that a swing low can form would be on Wednesday. But for those with a higher risk tolerance that do not want to wait on a trend line break can enter long positions now with a stop place below Tuesday’s low.

Bonds seem to be confirming the daily cycle low for stocks.

Bonds have been trading inversely to stocks recently. Bonds peaked on Monday and formed a swing high on Tuesday. Where stocks closed almost 5% higher on Tuesday, bonds closed over 5% lower on Tuesday to signal their daily cycle decline. Bonds should go on to break below the blue trend line in order to complete their daily cycle decline.