Cycle Trading

Pre-Summary

Stocks rejected resistance near 7575 last week, forming a swing high before closing below both the 10-day and 50-day moving averages. The daily cycle has now entered its declining phase, shifting attention toward where the next Daily Cycle Low (DCL) will develop.

Stocks reached resistance near 7575 last Wednesday before forming a swing high on Thursday. Friday’s close below both the 10-day and 50-day moving averages signaled that the daily cycle had entered its declining phase.

Monday’s rally briefly pushed price back above the 50-day moving average, but buyers were unable to reclaim the declining 10-day moving average. Stocks were rejected at that level and closed back below the 50-day moving average, causing the 10-day moving average to turn lower and reinforcing the current daily cycle decline.

The next level to watch is the Day 26 low at 7431.26. A break below that level would indicate the decline is continuing toward a pending Daily Cycle Low.

However, the larger trend remains constructive. Stocks are still in a daily uptrend, which means Day 26 may ultimately prove to be the Daily Cycle Low. A break above 7498.47 would form a swing low, and a recovery back above the 50-day moving average would signal a cycle band buy signal, identifying Day 26 as the DCL and indicating that the daily uptrend has resumed. However, we will need to see a close back above the 10 day MA to label day 26 as the DCL.

Cycle Insight

Every daily cycle eventually transitions from advance to decline. The important question is not whether a decline has begun—that is expected. The important question is where the next Daily Cycle Low forms and what that reveals about the strength of the next advance.

That story is only beginning to unfold.

What to Watch Next

As the current decline develops, the location of the next Daily Cycle Low may provide clues that extend well beyond the daily timeframe. We’ll explore that in the next chapter of this series.