Volatility

Stocks formed a swing low and closed above the 50 day MA on Friday. In real time it looked as if day 42 was the daily cycle low. But after being rejected by the 10 day MA on Monday and delivering bearish follow through on Tuesday, the status of the daily equity cycle is uncertain.

Stocks could be entering another period of volatility, similar to August, where stocks churned below the 50 day MA. Stocks need to do one of two things to clarify the status of the daily cycle.

Scenario 1 – Day 42 was not the daily cycle low.
Since stocks have not closed above the 10 day MA nor have they broke above the declining trend line then it is still possible that stocks are seeking their daily cycle low. Therefore if stocks continue lower and break below the day 42 low that would extend the daily cycle decline.

Scenario 2 – Day 42 was the daily cycle low.
If day 42 was the daily cycle low then stocks would need stocks reverse once again and break above the declining daily cycle trend line which would confirm the new daily cycle.

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