Cycle Trading

PRE-SUMMARY

XLE formed a swing low after printing its lowest point on day 29, placing it in its timing band for a daily cycle low.

XLE printed its lowest point on Friday, day 29, placing the ETF in its timing band for a daily cycle low.  XLE formed a swing low on Monday as buyers responded from the recent low. While the swing low is an important first step, confirmation will be needed before labeling day 29 as the daily cycle low.  This places XLE in a position where the next move becomes important. A close above the converging 10 day moving average and 50 day moving average would satisfy the confirmation requirements and signal the start of a new daily cycle.

The decline into the day 29 low has left XLE quite stretched below the 10 day moving average. As a result, the moving average is still declining and remains as overhead resistance. So while the first condition needed to signal a new daily cycle has been met, the swing low must be accompanied by a close above the 10 day moving average before a daily cycle low can be labeled. XLE may need to consolidate in order to allow the 10 day moving average time to catch up to price.  If XLE closes above the converging 10 day moving average and 50 day moving average, then day 29 would be signaled as the daily cycle low. If resistance at those moving averages continues to contain price, then additional consolidation could develop before the next directional move emerges.

CYCLE ALIGNMENT

• Mixed