An email begins our discussion tonight.
“Know it is a long shot, but what are the chances that the equities are still in the first Daily Cycle?”
To begin I think that it is important to remember our framework. Stocks are on month 22 of the yearly cycle and are clearly overdue for the yearly cycle decline. A left translated weekly cycle is necessary for a yearly cycle decline. Left translated weekly cycle typically peak on or before week 8. So the first chart that I want to look at to address this will be the weekly equity chart.
The first thing we notice on the weekly chart is the bearish reversal on week 8. It is followed up by a clear and convincing weekly swing high which was accompanied by a weekly trend line break signaling an intermediate cycle decline. The hallmark of an intermediate cycle decline is a failed daily cycle.
So now we look at the daily equity chart.
The swing high that follows the day 31 peak delivers a trend line break that leads to the day 35 low. The day 35 low hits right in the normal timing band for a daily cycle low. In order for Friday to be the daily cycle low, that would have stretched the daily cycle out to 46 days. While possible, I believe that it is a low probability event.
One reason is that the day 35 low does fit well in our equity overall framework. We are expecting a left translated weekly cycle. The 35 day low means that stocks are now in a failed daily cycle, which syncs up with what we discussed on the weekly chart.
The dollar rallying out of an intermediate low also ties into what we see happening with equities.
Thursday was the lowest point following the day 16 peak. Friday was an inside day and Monday formed a clear and convincing swing low and trend line break to make today day 2 of the new daily dollar cycle. 20 days makes this previous cycle a right translated daily cycle. And by printing a higher daily cycle low, the dollar continues to emerge from the March intermediate cycle low.
And we usually do see stocks declining into an intermediate cycle low as the dollar emerges from an intermediate cycle low.
We see above, every intermediate equity decline was accompanied by the dollar emerging out of an intermediate low. And it appears that the pattern is repeating again.