Stocks have spent several months consolidating below the 7800 level. Recent price behavior suggests that the consolidation may be giving way to a more significant decline.
The Daily Chart Signals Deterioration
Stocks closed below the 10 day MA on Wednesday, then below the 50 day MA on Friday, signaling the daily cycle decline.
Friday’s close also broke below the lower daily cycle band. That ended the daily uptrend and established a daily downtrend.
The break below the lower daily cycle band also signals an intermediate cycle decline.
Monday’s price action is attempting to stabilize following Friday’s decline, but the deterioration in daily cycle structure remains.
A Larger Cycle Concern
The progression from a close below the 10 day MA to a break below the 50 day MA and the lower daily cycle band suggests that the weakness may extend beyond an ordinary daily cycle decline.
The daily chart is now raising questions about the larger cycle structure.
Whether stocks can stabilize and begin recovering—or continue declining—will help determine the significance of this deterioration.
We will examine the larger cycle implications in greater detail in this week’s Weekend Report.
The subsequent price behavior will determine whether the developing cycle expectations deserve greater confidence.
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