Cycle Trading

Stocks formed a swing low off of support from the 50 day MA and closed above the declining trend line to signal a new daily cycle.

In the Weekend Report we noted that stocks formed a weekly swing high and are in their timing band for an intermediate cycle low. Which gives us the cyclical expectation for this new daily cycle to left translate and fail in order to usher in the intermediate cycle decline.

Stocks appear to have delivered a classic false breakout from this megaphone topping pattern. Stocks formed a swing high and closed below the upper stem of the megaphone to signal the daily cycle decline. With stocks in their timing band for an intermediate cycle decline – this could trigger the intermediate cycle decline and a revision to the mean.

If stocks have begun the intermediate cycle decline then resistance from the upper stem of the megaphone pattern should reject stocks to send them into the intermediate cycle decline.

Here is why I am hoping that I am wrong. If stocks can recover the upper stem of the megaphone and break above the day 56 high – then I would submit that the flood of liquidity would be overwhelming our timing bands and that stocks are entering a bubble phase.