I have received some (many) emails asking me if today’s action in stocks signals a failed daily cycle. Here are the 3 reasons why I think that Stocks are now heading into their final daily cycle decline.
1) The peak on day 40 locks in a right translated cycle.
2) No trend line break.
3) No real panic (until Tuesday)
The peak on day 40 locked in a right translated daily cycle formation. Right translated daily cycles generally go on to print a higher high, even if the following cycle turns out to be a failed daily cycle. Since stocks did not break out to a new high that is the first signal that stocks are still declining into their daily cycle low.
One of the tools that we use to help confirm the cycle decline is a trend line break. While stocks broke below the accelerated (red-dashed) trend line to signal the start of the daily cycle decline they did not break below the (black) daily cycle trend line. Now that that stocks are making their final decline into their daily cycle low they will likely break below the (black) trend line before completing their daily cycle decline.
As stocks move into a cycle low there is usually some panic selling as the cycle low approaches. In retrospect it does not seem that day 46 achieved any panic selling as opposed to the selling on Tuesday.
So for those reasons I think that Tuesday was day 54 for the daily equity cycle. Which places stocks late in their timing band to print a daily cycle low. I think that once the (black) tend line is breached, a swing low should mark the daily cycle low. Then a break above the declining (dashed) trend line will confirm the new daily cycle.