Stocks formed a bearish reversal on Monday.
The rally out of the day 26 low saw stocks get quite stretched above the 10 day MA. And some consolidation is needed to allow the 10 day MA to catch up to price. But there maybe something more sinister going on here.
Recall that stocks appeared to have delivered a classic false breakout in early September. Stocks formed a swing high and closed below upper stem of the megaphone to signal the daily cycle decline. With stocks in their timing band for an intermediate cycle decline – this could have triggered a revision to the mean. Instead stocks found support at the 3200 level.
On Monday, stocks once again pierced the upper megaphone trend line.
Back in September, stocks managed to actually close above the upper megaphone trend line. But then was soundly rejected by it. On Monday, stocks did break out to an all time high. However, stocks could not hold on to the new high and reversed into the close. Stocks closed below the Early September high and below the upper megaphone (blue) trend line. If stocks deliver bearish follow through to close back below the red trend line that would signal a possible top on day 6 to set up a left translated daily cycle formation.
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