Cycle Trading

Bonds delivered a bearish surprise on Monday.

The rally out of the day 38 DCL initially looked constructive, with bonds closing above the upper daily cycle band on Wednesday, day 6. That close ended the daily downtrend and began a new daily uptrend — at least temporarily. But bonds failed to generate any bullish follow-through. Instead, they closed lower on Friday and then dropped hard on Monday.

Bonds fell 1.25% on Monday, closing below both the 50 day moving average and the 10 day moving average to signal the daily cycle decline. More importantly, bonds also closed below the lower daily cycle band. Closing below the lower band ends the daily uptrend and begins a new daily downtrend. It also signals a continuation of the intermediate cycle decline.

A break below the previous DCL at 88.46 will form a failed daily cycle — further confirming that the intermediate cycle decline remains in force.