Cycle Trading

Pre-Summary

Bonds signaled a Daily Cycle Low this week, but the daily downtrend remains intact. This chart demonstrates why a new cycle does not automatically signal a new trend.

The decline extended into Day 39 before bonds formed a swing low and closed back above the 10-day moving average. That combination signaled Day 39 as the Daily Cycle Low.

Although a new daily cycle has begun, the daily downtrend has not yet ended. Price remains below the upper daily cycle band, so the trend has not changed.

This distinction is one of the foundations of cycle analysis. A new cycle can begin while the prevailing trend remains intact. The market has improved internally, but additional evidence is still required before the trend shifts from bearish to bullish. The decline into the Day 39 low also pulled the 10-day moving average lower. A period of consolidation beneath the 50-day moving average would allow the 10-day moving average to flatten before turning higher.

The next signal is straightforward. A close above the upper daily cycle band ends the daily downtrend and begins a new daily uptrend. Until then, the new cycle deserves the benefit of the doubt while the existing trend remains respected.

Cycle Insight

A Daily Cycle Low Does Not Always Change the Trend

• Day 39 entered the Daily Cycle Low timing band.
• A swing low and close above the 10-day moving average signaled the Daily Cycle Low.
• The daily downtrend remains intact because price has not yet closed above the upper daily cycle band.
• What to Watch Next – A close above the upper daily cycle band ends the daily downtrend and begins a new daily uptrend.