Cycle Trading

Stocks formed a swing low on Monday.

Stocks printed its lowest point on day 47, placing them late in their timing band for a DCL to form. Monday’s swing low closed back above the 10 day MA to signal the new daily cycle. Stocks are currently in a daily uptrend. Stocks will remain in their daily uptrend unless they close back below the lower daily cycle band — however RSI 05 is signaling a potential change in trend. 

During the advancing phase of the intermediate cycle RSI 05 becomes embedded in overbought. Any oversold condition will quickly reverse and to have RSI 05 embed back in the overbought condition. 

The decline into the day 47 DCL saw RSI 05 become oversold. That was quickly reversed, which aligns with being in the advancing phase of the intermediate cycle.  The concern I have is that while stocks broke out above the previous daily cycle high, RSI 05 did not get overbought. This is something to watch going forward. A quick bearish reversal would be an early warning to a change in trend.

What could cause this change in trend is the Joker in the deck. 

The dollar remains caught in between the 10 day MA and the converging 50 day MA & 200 day MA. I think that the converging 50 day MA and 200 day MA is a critical area.  Rejection here and followed by a close below the 10 day MA will send the dollar into a left translated daily cycle decline – which would likely extend the intermediate cycle decline.  Under this scenario stocks would likely continue in their advancing phase of the intermediate cycle.

But close above the converging 50 day MA and 200 day MA would shift the odds that December 28th was both an ICL and the yearly cycle low for the dollar.   Under this scenario the odds would shift to a left translated daily cycle formation for stocks.