Cycle Trading

Summary

• Day 15 decline broke below the 50 day MA and prior DCL, briefly forming a failed daily cycle
• Lack of bearish follow through shifted odds away from trend continuation
• Swing low and recovery above the 50 day MA stabilized the structure
• Close above the 10 day MA with follow through confirms day 15 as an early DCL
• Daily downtrend remains intact unless price closes above the upper daily cycle band
• A breakout above the upper daily cycle band would suggest an ICL may be in place

XLE dropped 3.05% on day 15, a decline that forced a close below the 50 day MA and below the previous DCL — briefly forming a failed daily cycle. That breakdown initially shifted the odds toward a deeper cycle decline.

However, XLE failed to deliver any bearish follow through. Instead, it formed a swing low and closed back above the 50 day MA. Price then spent several sessions crawling along the 50 day MA, obscuring the daily cycle count and signaling underlying stabilization rather than trend continuation.

That ambiguity resolved itself on Monday. XLE closed back above the 10 day MA and then delivered bullish follow through on Tuesday. Based on that price action, day 15 is best labeled as an early daily cycle low (DCL).

XLE remains in a daily downtrend for now. A close above the upper daily cycle band is still required to officially end the daily downtrend and begin a new daily uptrend. Importantly, a close above the upper daily cycle band would also signal that an intermediate cycle low (ICL) may have been set.