Cycle Trading

Stocks formed a swing high and closed below the 10 day moving average on Thursday, then delivered bearish follow-through on Monday. That follow-through caused stocks to close below the 50 day moving average, shifting the odds that day 20 was not the DCL. From a cycle perspective, stocks should now break below the day 20 low of 6631.44 in order to complete the daily cycle decline.

The more important development came with Monday’s close below the lower daily cycle band. Closing below the band ends the daily uptrend and begins a daily downtrend — a key signal that the intermediate cycle decline has started. This aligns with where stocks are in the intermediate timing band and adds further weight to the bearish structure taking shape.

The next major level to watch is the previous DCL at 6550.78. A break of that level will form a failed daily cycle, which is very typical once an intermediate cycle decline is underway. Unless stocks can reclaim either the 10 day moving average or the 50 day moving average, the expectation should be for the decline to continue as the market works its way toward the true DCL.