Cycle Trading

Stocks dropped over 4% on Tuesday to close below both the 50 day MA and the 10 day MA.

Stocks closed above the declining trend line on Friday to seemingly confirm the new daily cycle. Tuesday’s big selloff presents us with a conundrum. Either the daily cycle topped on day 4 or stocks are still seeking out their DCL, possibly stretching the daily cycle past 58 days.

Over the past 8 years there has been precedence for a stretched daily cycle to get past 58 days to 60 even 61 days. However, there has not been one instance where a daily cycle peaked on day 4. And the fact that the 10 day MA did not turn up makes it likely that Tuesday was day 58 of a very stretched daily cycle. Under this scenario, stocks are likely to undercut the day 54 low before printing their DCL. What is clear is that stocks are still in a daily downtrend. They will remain in their daily downtrend until the can close above the upper daily cycle band.