Stocks have declined into their timing band for a daily cycle low. Friday was day 27, placing stocks within the timing band for a DCL. With stocks now testing the 10 day MA, there are three possible developments to watch.
Bullish Reversal
A daily swing low followed by a close above the 10 day MA would signal that stocks have established their DCL.
Bearish Rejection
A rejection at the 10 day MA followed by renewed selling would extend the daily cycle decline and strengthen the developing bearish interpretation.
Consolidation
Stocks could consolidate around the 10 day MA without delivering a decisive signal. This would leave the potential DCL unresolved while allowing the moving averages time to adjust.
A Potential Catalyst
Wednesday’s Federal Reserve announcement could provide the catalyst for stocks to resolve this developing setup. Whether stocks rally, decline, or continue consolidating, the important evidence will be how price responds around the 10 day MA.
The Bigger Picture
Stocks remain in a daily downtrend. Even if a DCL is signaled, that does not necessarily mean the intermediate cycle decline has ended.
The next development will provide additional evidence about the larger cycle structure, which we continue to examine in The Weekend Report.
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