The dollar has been trading in a narrow range since early November. This narrow range has obscured our daily cycle count and made our trend line tool ineffective. So we need to look to other clues.
Two other clues to look at are the 10 day MA and the TSI. A close below the 10 day MA is a signal for a daily cycle decline. And a TSI trend line break will signal a new daily cycle.
After breaking out to a new high on Monday the dollar formed a swing high. Then closed below the 10 day MA on Wednesday, which is potentially day 30 of an extended daily cycle.
If Wednesday was an extended 30 daily cycle low, then our expectation would be to see the dollar break out to a new high. A break above Monday’s high of 88.52 confirms Friday as the extended, daily cycle low. Should the dollar fail to make a new high and break lower then day 23 will be confirmed as the daily cycle low.
Stocks printed a bearish engulfing candle on Friday, day 31. Stocks have entered their timing band to seek out a daily cycle low. The bearish reversal on Friday has eased the parameters for forming a swing high, which is a prerequisite for a daily cycle decline.
While stocks are poised for a daily cycle decline, there was a large Buying on Weakness number that printed on Friday. The 567 million BOW number is more the type of number I would expect to see at an intermediate bottom, not near a daily cycle top. However keep in mind that already there has been 4.55 Billion printed is Selling on Strength during this daily cycle, as we discussed here. While the Friday’s BOW was large, it aligns with our cyclical expectations. This daily cycle has locked in a right translated nature. I think that the large BOW number suggests that we will see a daily cycle decline that prints a higher low followed by a new daily cycle printing a higher high. I believe that the 4.55 Billion SOS is foreshadowing that the new daily cycle will be a left translated cycle that fails, leading to an intermediate cycle decline.
Once again we find that our trend line tool is not effective and we need to look to other clues. A swing high accompanied by a close below the day 10 MA will signal the daily cycle decline. A break below 2065.06 forms a daily swing high.
The Russell has already formed a daily swing high. There is also a defined daily cycle trend line. It appears that a break below Friday’s’ low of 1172.44 will deliver a trend line break confirming the daily cycle decline for the Russell.
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