Cycle Trading

PRE-SUMMARY

Stocks signaled a daily cycle decline last Friday, but Monday’s rebound is beginning to shift the odds toward a potential daily cycle low.

Stocks formed a swing high last Wednesday and closed below the 10 day moving average on Friday, turning the moving average lower and signaling a daily cycle decline.  However, sellers failed to deliver bearish follow-through on Monday. Instead, stocks closed higher, indicating that downside momentum may already be beginning to fade.  From a cycle perspective, Friday could represent day 12 of a new daily cycle. However, because stocks did not turn the 10 day moving average lower during the decline into the day 34 low, Friday could also represent day 46 of an extended daily cycle.

Monday’s rebound begins to shift the odds toward the extended-cycle scenario. This indicates that stocks may be in the process of forming a daily cycle low.  Confirmation will be needed. A swing low and close above the 10 day moving average would have us label day 46 as the daily cycle low. A break above 7545.81 will form a swing low.  Until then, the daily cycle decline remains the active signal. However, buyers have taken the first step toward challenging that signal and potentially setting the stage for a new daily cycle.

CYCLE ALIGNMENT

Bullish