Potential False Weekly Breakout Developing

Stocks appear to be developing a false weekly breakout.

Stocks have been contained by resistance at the 3330 over the past several weeks. This week stocks broke cleanly above the 3330 level. But already appear to be developing an upper shadow on the weekly candle. This is week 19 for the intermediate equity cycle, placing stocks in their timing band for an intermediate cycle low. There are bearish divergences developing on the weekly oscillators that often accompany a cycle top. A close below the 3330 level would form a bearish weekly reversal which would indicate the intermediate cycle decline.

And as we discussed on Monday, there is a potential Black Swan Event developing in China due to Coronavirus. And the economic impact of the Coronavirus can help to intensify the pending intermediate cycle decline.

Time to Dance Close to The Exit

February is month 14, placing stocks late in their timing band for a yearly cycle decline. Stocks are also in their timing band for a weekly (intermediate) cycle decline. So we need to be on “our toes” for a left translated daily cycle formation to develop that will trigger an intermediate and possibly yearly cycle decline.

Despite closing at all time highs, there are bearish divergences developing which often herald a cycle decline. And with a potential Black Swan Event developing in China with Massive Manufacturing Disruptions Due to Coronavirus it looks like its time to be dancing close to the exit.

Bearish Divergence

Stocks broke out again to new highs on Monday.

Monday was day 27 for the daily cycle, placing stocks 3 days shy of their timing band for a daily cycle low. There are bearish divergences developing on the the money flow and oscillators which often precede a cycle decline. A break of the daily cycle trend line will signal of the daily cycle decline.

Miner Support


 

The Miners printed a bullish reversal off of support from the 10 day MA on Thursday to print a new daily cycle high.

Thursday was day 21 for the daily Miner cycle, placing the Miners in the early part of its timing band for a daily cycle low. The new high on day 21 assures us of a right translated daily cycle formation. However there are bearish divergences that are emerging on the oscillators, which often precede a cycle decline. A swing high accompanied by a close below the 10 day MA will signal the daily cycle decline. The Miners have established a daily uptrend. They will remain in their daily uptrend as long as they do not close below the lower daily cycle band.

Miners Suspicion

The Miners printed their lowest point on Friday, following the peak on day 11. Friday was day 18, placing the Miners in the early part of its timing band for a daily cycle low.

The Miners formed a swing low and closed above the 10 day MA on Tuesday to indicate a new daily cycle. So while the Miners are in the early stages of a new daily cycle they are on week 20 for their intermediate cycle. And allowing 6 to 8 weeks for the new daily cycle to run its course will bring the Miners deep in their timing band for an intermediate cycle low. Therefore we are suspicious that this new daily cycle will left translate and failed to usher in the intermediate cycle low.

The daily chart shows a bearish divergence on the oscillators at (1) and that the Miners closed below the lower daily cycle band at (2). The weekly chart, which I will detail in the Weekend Report, shows that last week the Miners formed a weekly swing high and closed below the 10 week MA. The these are all indicators that the Miners have begun their intermediate cycle decline.

The 7/13/19 Weekend Report Preview

The Dollar

The dollar formed a daily swing high on Wednesday.

Wednesday’s swing high caused the dollar to close convincingly below the 50 day MA to signal the daily cycle decline. The dollar delivered more bearish follow though on Friday by closing below the 10 day MA. The peak on day 9 can still result in a left translated weekly cycle formation, which aligns with the dollar being in an intermediate cycle decline. However, the dollar has begun a new daily uptrend. A close below the lower daily cycle band would end the daily uptrend and renew the daily downtrend.

Stocks

Stocks printed a new daily cycle high on Friday.

The new high on Friday, day 28, locks in a right translated daily cycle formation. There are bearish divergences developing on the oscillators that signal that cycle top is near. At 28 days, stocks are 2 days shy of their timing band for a daily cycle low. A swing high accompanied by a convincing close below the daly cycle trend line will confirm the daily cycle decline. Stocks are currently in a strong daily uptrend. Stocks will remain in their daily uptrend unless they close below the lower daily cycle band.

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Stocks Deliver Bearish Signals

Stocks closed lower on Monday.

Monday was day 24 for the daily equity cycle, which places stocks being 6 days shy of its timing band for a daily cycle low. And we are starting to see bearish signals develop. Stocks formed a swing high on Friday, They followed up with closing lower on Monday. Also the oscillators have developed bearish divergences and delivered bearish crossovers. But with stocks being in a storing daily uptrend we will need to see a close below the 10 day MA to signal the daily cycle decline.

Closer To A Top Than A Bottom

Stocks broke out a new daily cycle high on Monday.

Monday was day 16 for the daily equity cycle. While stocks broke out to a new daily cycle high there are signs that signal caution. One of the signs that emerge as a cycle nears its peak is the bearish divergence developing on the oscillators.

Another signal is the clustering of Sell on Strength days.

6 of the past 11 trading days stocks have printed a large Selling on Strength numbers. The clustering SOS days often precede a cycle decline.

In the Weekend date we discussed how the previous intermediate cycle was really stretched. And since cycles often balance out, we suspect that this intermediate cycle may be short. Which raises the possibility of that this daily cycle may left translate to begin its intermediate cycle decline.

Big money tends to sell into a breakout to a new high. If stocks print a reversal and break below the daily cycle trend line that would lock in a left translated daily cycle formation and indicate that stocks are beginning their intermediate cycle decline.