Cycle Trading

On Tuesday we observed that stocks broke above resistance and was now closing at all time highs. We constructed a line in the sand. If stocks remained above it, then the breakout continues. But a close below the line in the sand would be a warning.

Stocks delivered a warning on Thursday.

Stocks formed a swing high and closed below the line in the sand on Thursday which is a warning of a correction. Notice that RSI 03 is nearing oversold. Aside from the decline into the 2 recent daily cycle lows, notice how quickly RSI 03 reversed once it became oversold. If RSI 03 reverses quickly again, that would indicate that stocks will continue in the advancing phase of the intermediate cycle. If stocks deliver bearish follow through and RSI 03 becomes embedded in oversold, that would signal that the intermediate cycle low has not yet been set.