Cycle Trading

Stocks were rejected twice at the 10 day moving average on Tuesday and Wednesday. That repeated rejection signaled that upside momentum was fading — and Thursday’s bearish follow through confirmed it. Stocks broke lower, extending the daily cycle decline as traders moved to reduce risk.

From a cycle perspective, this type of rejection at the 10 day moving average is often an early warning that the uptrend is weakening. We should expect to see the 10 day moving average turn lower as the market continues seeking out its next daily cycle low (DCL). The peak on day 13 continues to point toward a left-translated daily cycle formation, which typically precedes an intermediate cycle decline.

The next critical level to monitor is the rising 50 day moving average. This has been a consistent zone of support since the yearly cycle low back in April. If that support level holds, we could see the formation of a new daily cycle low and a potential resumption of the broader uptrend. However, a decisive close below the 50 day moving average would be far more concerning — as it would not only open the door to a failed daily cycle but also likely signal that the intermediate cycle decline is underway.