Cycle Trading

Oil broke above the March high on Tuesday, establishing a new yearly cycle high.

After peaking in March, oil declined into a DCL. The ensuing daily cycle saw oil peak on day 39, which was below the March high. Oil printed a DCL on 5/21, which makes Tuesday — day 6 for the new daily cycle. After a 3 month consolidation, breaking out to a new high this early in the daily cycle should result in a bullish trending move. If oil delivers bullish follow through then the day 39 breakout level can be used as the stop.

However, there are some concerns.

• This is month 14 for the yearly oil cycle, which places oil deep in its timing band for a yearly cycle decline.
• There are bearish divergences developing on the oscillators.
• Oil formed a bearish reversal on Tuesday.

If oil forms a swing high and closes back in the resistance zone that would jeopardize the breakout. A close below the resistance zone would set oil up for a left translated daily cycle formation.