Stocks Caught in a Squeeze Play

On Monday we discussed how stocks needed to break below their previous daily cycle low of 2532.69 in order to complete their intermediate cycle decline. And that by closing below the 200 day MA signaled that stocks were continuing their intermediate cycle decline.

Stocks reversed on Tuesday and regained the 200 day MA.

Regaining the 200 day MA places stocks in a squeeze play between the 200 day MA and the declining 10 day MA. If stocks form a swing low and close above the 10 day MA then will need to label day 34 as the DCL.

Bonds appear to have begun their daily cycle decline.

Tuesday was day 28 for the daily bond cycle. That places bonds in their timing band to seek out a daily cycle low. Therefore Tuesday’s swing high has good odds of marking the daily cycle top. A close below the 10 day MA will signal that the daily cycle is in decline. Then bonds should break below the daily cycle trend line in order to complete its daily cycle decline. Bonds have been closing above the upper daily cycle band signaling that they are in a daily uptrend. If bonds form a swing low above the lower daily cycle band then they will remain in their daily uptrend.

Advertisements

Bonds Break Lower

Bonds lost the 50 day MA on Tuesday.

Not only did bonds lose the 50 day MA, they also closed below the lower daily cycle band to confirm the daily cycle decline. Tuesday was day 12 for the daily bond cycle. The peak on day 6 assures us of a left translated daily cycle formation. A break below the previous daily cycle low of 123.69 will form another failed daily cycle confirming the continuation of the intermediate cycle decline. And with bonds on only day 12 for their daily cycle, they could trend lower for the next 5 to 10 days before printing their DCL.

Gravitational Pull on Bonds

Bonds formed a swing high on Monday. They delivered bearish follow through on Tuesday by closing below the daily cycle trend line to confirm the daily cycle decline.

Tuesday was day 13 for the daily bond cycle. That places bonds 5 days shy of its timing band for a daily cycle low. So while a peak on day 11 starts to shift the odds towards a right translated daily cycle formation, I believe that there something more sinister is afoot. I suspect that bonds are beginning to feel the gravitational pull of a larger degree correction.

The long term weekly charts shows a multi-year resistance zone at the 128-129 level. And this week bonds are being rejected by the multi-year resistance zone. So this is setting up to be a longer bearish move. Which I plan to cover in Wednesday’s Mid-Week Update.

Beware Bonds

Bonds finally appear to have confirmed a new daily cycle.

Bonds printed their lowest point last Friday. That was day 12, which is usually too early for a daily cycle low. However bonds have now:
* Broke above the declining trend line
* Delivered a bullish zero line crossover on the TSI
* Closed above the lower daily cycle band
* Closed above the 10 day MA
* Managed to turn the 10 day MA higher.

All of which convinces me that day 12 hosted the DCL.

The bigger picture is that bonds are in their timing band for a yearly cycle low and are in an interemdiate cycle decline.

Bonds have formed a monthly swing high in October. A monthly swing high is required for the yearly cycle decline. Bonds will need to deliver some bearish follow through to confirm that the yearly cycle is in decline.

Bonds are already in a daily downtrend. If the yearly cycle decline has begun then I suspect that we will see bonds backtest the 50 day MA and then rollover into another left translated daily failed cycle in order to complete the yearly cycle decline.

Bonds Bear Witness to Bearish Cycle

On September 19 we discussed that bonds were beginning to become bearish. On Wednesday, bonds confirmed a bearish cycle.

Bonds printed an extended daily cycle low last Wednesday. Bonds formed a swing low the next day and then closed above the declining 10 day MA on Monday to confirm that day 38 hosted the DCL. Bonds closed lower on Tuesday and then broke below the previous daily cycle low on Wed to form a failed daily cycle. Since Wed was only day 5 bonds could potentially go lower for the next 2 – 4 weeks before printing a daily cycle low.

Bonds have begun to close below the lower daily cycle band to establish a daily downtrend. Bonds will continue in their daily downtrend until they close above the upper daily cycle band.
weekly

Bonds are delivering bearish follow through to last week’s break of the weekly trend line. This confirms that bonds are in an intermediate cycle decline. At 12 weeks bonds could trend lower for another 6 – 8 weeks before printing their ICL

Bonds Beginning to Become Bearish

The daily bond cycle peaked on day 29. A swing high formed two days later. Then bonds broke below the daily cycle trend line on day 32 to confirm the daily cycle decline.

Bonds formed a swing low last Thursday off the day 33 candle. Since 33 days places bonds deep in their timing band for a daily cycle low that swing low had good odds of marking the daily cycle low.

However, bonds broke lower.

Bonds delivered a bearish signal last week when they failed to follow through on a swing low deep in the timing band for a daily cycle low. Bonds delivered another bearish signal on Tuesday by closing below the lower daily cycle band. That ends the daily uptrend and indicates that bonds have begun their intermediate cycle decline.

Looking at the weekly chart we can see that bonds formed a weekly swing high last week. Bonds are delivering bearish follow through this week. Bonds also broke below the weekly trend line which is another signal that the intermediate cycle decline has begun.

A failed daily cycle normally ushers in the intermediate cycle low. Since the current daily cycle peaked on day 29, that locks in a right translated daily cycle formation. Bonds should begin a new daily cycle any day. Bonds will need for the new daily cycle to form as a left translated, failed daily cycle in order to complete the intermediate bond decline.

Possible Left Translated Bond Cycle

00

The intermediate bond cycle peaked on week 15 and then formed a weekly swing high that saw bonds break below the weekly trend line to confirm that bonds began their intermediate cycle decline.

tlt_weekly

The rally over the past 2 weeks has been enough for bonds to form a weekly swing low. A weekly swing low could indicate a new intermediate cycle but that would mean that bonds printed a 16 week intermediate cycle. Since the intermediate bond cycle normally runs 18 – 26 weeks, I am suspicious that this 2 week rally in bonds may only be a counter trend rally that will set up the declining weekly trend line.

In order for that to happen then the current daily cycle will need to form as a left translated daily cycle.

tlt_daily

Thursday was day 9 for the daily bond cycle. The new high on day 9 does begin to shift the odds towards a right translated cycle formation. Bonds would need to have to roll over immediately in order to maintain the possibility of a left translated cycle formation.

Bonds did print an exhaustion candle on Thursday. A swing high here would signal that bonds were beginning their daily cycle decline. Bonds did not close above the upper daily cycle band on Thursday. Since bonds began to close below the lower daily cycle band prior to printing the day 19 low means that bonds had begun a daily downtrend. So if bonds were to form a swing high then they will remain in their daily downtrend which would likely result in a left translated cycle formation.

Daily Uptrends

0

Bonds began to close above their upper daily cycle band in March to establish a daily uptrend.

6 tlt dsily

While bonds are in an uptrend, they are currently seeking out their daily cycle low. Bonds printed their lowest point on Tuesday, day 34. That places bonds deep in their timing band for a DCL. At this point we are looking for a swing low and a break above the declining trend line to confirm a new daily cycle. A break above 122.14 will form a daily swing low. As long as bonds do not close below their lower daily cycle band they will remain in their daily uptrend.

Stocks are also in a daily uptrend.

spx

Monday was daily 24 for the daily equity cycle. That places stocks 6 days shy of their timing band for a daily cycle low. Gaps are beginning to develop that will likely get filled during the impending daily cycle decline. A swing high has already formed off the day 21 peak. A break below 2382.66 would send stocks into their daily cycle decline. A close below the 10 day MA will confirm the daily cycle decline. Stocks will remain in their daily uptrend unless they close below the lower daily cycle band.

Trend Line Breaks

0

The market delivered some trend line breaks on Monday.

Let’s begin with gold.

1 gld dialy

The daily gold cycle peaked on day 25. While a daily swing high formed the next day, gold essentially traded sideways until Monday when gold broke below the daily cycle trend line to confirm the daily cycle is in decline. Gold has averaged about 33 days for its last 10 daily cycles. So with Monday being day 30 that places gold right in its timing band to print a daily cycle low. One possible scenario would be for gold to form a daily cycle low at the convergence of the 200 day and 50 day MA.

Bonds have a similar set up.

2 tlt daily

The daily bond cycle peaked on day 25 and formed a swing high two days later. Like gold, bonds did not break below the daily cycle trend line to confirm its daily cycle decline until Monday. The last 7 daily cycles have averaged 27 days so with Monday being day 9 that places bonds in their timing band to print a daily cycle low. Once a swing low forms it would have good odds of marking a daily cycle low. Then a break above the declining trend line would confirm the new daily cycle.

So while both gold and bonds broke below their daily cycle trend lines, stocks broke convincingly above its daily cycle trend line.

3 spx daily

Stocks printed an extended 58 day, daily cycle low on March 27th. Emerging from the extended DCL, stocks breached the daily cycle trend line on day 7. However stocks did not deliver a clear and convincing trend line break until Monday. Monday was day 19 for the daily equity cycle. A break above the day 7 high of 2378.36 will shift the odds towards a right translated daily cycle formation. And if a right translated daily cycle forms, then we would need to reevaluate if 3/27 actually hosted an ICL.

Its About Time …

0

Stocks formed a daily swing low on Monday.

spx 1

Typically the daily equity cycle runs about 30 – 45 days from trough to trough. However, the previous daily cycle was stretched at 58 days. Since cycles tend to balance a stretched cycle with a shortened cycle, we could see a shortened daily cycle here.

spx

Even though we are expecting a shortened daily cycle, 13 days would be really short. I would have more confidence of the possibility that Friday hosted an early DCL if stocks broke below the previous daily cycle low of 2333.25 on Friday. The reason is that stocks have been declining into an intermediate cycle low for the past 6 plus weeks. A failed daily cycle normally forms during the intermediate cycle decline. A break below 2322.25 will form a failed daily cycle. However, with stocks being in their timing band for an intermediate cycle low, if stocks deliver a clear and convincing break of the declining trend line then we would be forced to recognize that a new intermediate cycle has begun.

Bonds have entered their timing band to seek out a DCL

tlt

The daily bond cycle peaked on Friday, day 23. A swing high formed on Monday. There is a bearish TSI divergence developing that we often see at cycle tops. A break below the daily cycle trend line will confirm the daily cycle decline.

Bonds have been closing above the upper daily cycle band, establishing a daily uptrend. We will watch for a DCL to form above the lower daily cycle band. If that happens then that will confirm that bonds are in a daily uptrend. They will continue in their daily uptrend until they close below the lower daily cycle band.