Bullish Reversal

After Wednesday’s big drop, the RSI index for stocks formed a bullish reversal on Thursday.

Stocks have not delivered anything that we could recognize as a daily cycle decline –until Wednesday.  Wednesday’s drop caused the RSI Index to become oversold. On Thursday, the RSI index formed a bullish reversal. The bullish RSI reversal is characteristic of stocks being in the advancing phase of its intermediate cycle.

Wednesday was day 59, placing stocks deep in its timing band for a daily cycle low. Stocks have been in a strong daily uptrend that has been characterized by highs forming above the 10 day MA and swing lows forming above the upper daily cycle band. If stocks form a swing low here that would signal a new daily cycle. If the swing low forms above the upper daily cycle band then stocks will remain in its daily uptrend and trigger a cycle band buy signal.

Stocks had a successful breakout of the megaphone pattern. But stocks got stretched above the 50 day MA. Wednesday’s drop has allowed the 50 day MA to catch up to price. A swing low off of support of the 50 day MA should resume the breakout.

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