Dollar Update

The dollar formed a bearish reversal on Wednesday. Wednesday was day 33 for the dollar’s daily cycle.  That places the dollar in its timing band for a daily cycle decline. 

The dollar delivered bearish follow through on by forming a swing high on Thursday. A break below the accelerated (dashed) trend line will signal the daily cycle decline. The dollar should go on to break below the rising blue trend line in order to complete its daily cycle decline. The dollar is currently in a strong daily uptrend. The dollar will remain in its daily uptrend unless it closes below the lower daily cycle band.  

Possible Support

Stocks broke below the June DCL on Tuesday. While a case can be made that day 54 was not a DCL, breaking below the June DCL clearly forms a failed daily cycle.

If we are correct that day 54 was the DCL, then stocks should still have another 2 – 3 weeks before printing a DCL. And any bounce off support from the June DCL should only see the stocks set the declining trend line before completing its daily cycle decline.

I favor the day 54 DCL scenario making Tuesday day 15. However, looking at a longer term chart aligns with the scenario that Wednesday was day 69 of an extended daily cycle.

The weekly chart shows that stocks are approaching support from the converging the August 2020 peak and the rising 200 week MA. If stocks form a daily swing low, a long position can be entered with the stop being Tuesday’s low based on Tuesday being day 69 of a stretched daily cycle.

Declining Trend Line

Stocks closed lower again on Monday.

Stocks are getting stretched below the 10 day MA and approaching a possible support level at the June DCL. We could see stocks deliver a dead cat bounce, which will help to allow the 10 day MA to catch up to price. With stocks needing another 3 – 4 weeks to be in their timing band for a DCL, any bounce will likely set the declining trend line. Stocks are currently in a daily downtrend. They will remain in their daily downtrend unless they close back above the upper daily cycle band.

The 9/24/22 Weekend Report Preview

The Dollar 

The Fed decision to raise rates caused the dollar to break out to a 20 year high.  

Friday was day 30 for the dollar’s daily cycle.  The new high on day 30 locks in a right translated daily cycle formation.  30 days also places the dollar in its timing band for a daily cycle decline. The dollar will need to form a swing high and break below the accelerated (dashed) trend line to signal the daily cycle decline. The dollar is currently in a strong daily uptrend.  The dollar will remain in its daily uptrend unless it closes below the lower daily cycle band.  

Stocks 

When stocks undercut the day 54 low last Friday, the bullish divergence on the oscillators indicated a continuation of the daily cycle decline.

When stocks formed a swing low on Monday it looked, in real time, that the undercut-extended daily cycle low scenario was valid. Then stocks were rejected by the breakdown level on Wednesday then delivered bearish follow through on Thursday and Friday. Therefore we will label day 54 as the DCL, making Friday day 13 of a failed daily cycle. And losing the breakdown level signals that stocks have entered a bloodbath phase. A break below the previous DCL of 3636.87 will form a failed daily cycle to signal the intermediate cycle decline.  

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Bloodbath Phase

When stocks undercut the day 54 low last Friday, the bullish divergence on the oscillators indicated a continuation of the daily cycle decline. Recovery of the breakdown level would have indicated an extended daily cycle low.

When stocks formed a swing low on Monday it looked, in real time, that the undercut-extended daily cycle low scenario was valid. Then stocks were rejected by the breakdown level on Wednesday then delivered bearish follow through on Thursday. Which makes me think we need to label day 54 as the DCL which would make Thursday day 12 of a failed daily cycle. And loosing the breakdown level signals that stocks have entered a bloodbath phase – which can last 5 to 10 days.

Undercut –> Still In Play

Stocks printed a lower low on Tuesday.

Tuesday was day 64 for the daily cycle, placing stocks very deep in their timing band for a DCL. There are bullish divergences developing the oscillators that often proceed the cycle low. A swing low and recovery of the 8886.75 breakdown level will indicate the DCL. A close back above the 10 day MA will provide more assurance that day 64 was the DCL However stocks will not be out of the woods until they can close above the declining trend line.

Undercut –> Recovery

Stocks formed a swing low on Monday.

Stocks undercut the day 54 low on Friday. Monday’s swing low recovered the breakdown level to indicate that day 62 was the DCL. A close back above the 10 day MA will provide more assurance that day 62 was the DCL. But we will really need to see a close above the declining trend line in order to label day 62 as the DCL. 

Undercut In Play – Update

Stocks undercut the day 54 on Friday.

While stocks undercut the day 54 low on Friday, they also formed a bullish reversal. The bullish reversal eases the parameters for forming a swing low. A break above 3880.95 will form a daily swing low. Then a close back above the 10 day MA will have us label day 62 as the DCL. Stocks are still in a daily downtrend. They will remain in their daily downtrend until the can close above the upper daily cycle band.

If day 62 is the DCL, then stocks will be beginning the 2nd daily cycle for the intermediate cycle. I have some concerns once stocks confirm the new daily cycle, which I discuss in the Weekend Report.  

Undercut In Play

Stocks dropped over 4% on Tuesday to close below both the 50 day MA and the 10 day MA. They went on to print lower low on Thursday.

Stocks closed above the declining trend line on Friday to seemingly confirm the new daily cycle. However, Tuesday’s big sell off saw stocks close below both the 50 day MA and the 10 day MA. Since the rally out go the day 54 low did not manage to turn the 10 day MA higher, along with the bullish divergence in the oscillators, makes it likely that stocks are extending their daily cycle decline. An undercut of the day 54 low followed by a reversal and recovery of the 3886.75 level would signal an undercut DCL.

Conundrum

Stocks dropped over 4% on Tuesday to close below both the 50 day MA and the 10 day MA.

Stocks closed above the declining trend line on Friday to seemingly confirm the new daily cycle. Tuesday’s big selloff presents us with a conundrum. Either the daily cycle topped on day 4 or stocks are still seeking out their DCL, possibly stretching the daily cycle past 58 days.

Over the past 8 years there has been precedence for a stretched daily cycle to get past 58 days to 60 even 61 days. However, there has not been one instance where a daily cycle peaked on day 4. And the fact that the 10 day MA did not turn up makes it likely that Tuesday was day 58 of a very stretched daily cycle. Under this scenario, stocks are likely to undercut the day 54 low before printing their DCL. What is clear is that stocks are still in a daily downtrend. They will remain in their daily downtrend until the can close above the upper daily cycle band.