Cycle Trading

Stocks closed above the 10 day MA on Thursday. They delivered bullish follow through on Monday, which caused the 10 day MA to begin to flatten. So we can label day 48 as the DCL.

During the advancing phase of the intermediate cycle, RSI 05 tends to get embedded in overbought as evidenced in early April. But notice as stocks broke out to a new highs in late April and early May those breakouts were followed by 2 quick bearish reversals in RSI. That could be an early warning that an emerging bearish RSI pattern is beginning to emerge.

Now that stocks are rallying out of their DCL we need to keep a watch on RSI. If it begins to embed once again in overbought, that would indicate a resumption of the intermediate cycle advance. However, a quick bearish reversal would indicate something more sinister may be unfolding. In the Weekend Report I plan to discuss how another quick bearish reversal in RSI ties into where stocks are in their intermediate (weekly) and yearly cycles.