Cycle Trading

Pre-Summary

Stocks broke below the Day 24 low on Thursday, extending their daily cycle decline into Day 30. The decline places Stocks in their timing band for a DCL, but the break below the lower daily cycle band also changes the daily trend and raises a larger question about the intermediate cycle.

Stocks Break Lower

Stocks ran into resistance at the 7750 level last Thursday. Stocks formed a swing high and closed below the 10 day MA on Tuesday, then continued lower on Wednesday. On Thursday, Stocks broke below the Day 24 low. Since the rally out of the Day 24 low did not turn the 10 day MA appreciably higher, Thursday is likely Day 30 — placing Stocks in their timing band for a DCL.

But there has also been an important change in structure. Stocks closed below the former 7600 support level and the 50 day MA. The 50 day MA does not signal a DCL. That still requires a swing low followed by a close above the 10 day MA. But during the recent bullish structure, the DCL has been set before Stocks moved back above the 50 day MA. Thursday’s break below the 50 day MA adds another reason to allow the current daily cycle decline to fully develop. Stocks also closed below the lower daily cycle band. Closing below the lower daily cycle band ends the daily uptrend and begins a daily downtrend. It also calls into question whether Week 17 was the ICL.

Closing below the lower daily cycle band also calls into question whether Week 17 was the ICL. That does not mean that it wasn’t. It means that the evidence supporting that interpretation has weakened. Stocks are now in their timing band for a DCL. The next step is to allow price to tell us where that low forms. A swing low followed by a close above the 10 day MA will signal the DCL. The larger question will then be whether the next daily cycle can restore the bullish structure.

Current Framework

Trend: Daily downtrend.

Cycle: Day 30; in timing band for a DCL.

Next Trigger: Swing low + close above the 10 day MA signals the DCL.