Time To Raise Stops

On Thursday we discussed that stocks were ready to cross the line. Well, stocks closed above the previous daily cycle high on Monday.

Stocks are only on week 3 for their new intermediate cycle. Monday was only day 15 for the new daily cycle. Right translated cycles often peak on or after day 30. So stocks are breaking out to new all time highs early in the intermediate cycle with still plenty of time in the current daily cycle. And the holiday season is right around the corner which is typically one of the most bullish times of the year. Stops can be raised to a close below the previous daily cycle high of 4545.85.

Stocks Ready To Cross The Line

Stocks closed at a new all time high on Thursday.

Quite frankly I was a bit surprised to see stocks close above the pervious all time on the first try. Still, stocks are quite stretched above the 10 day MA. They may require some consolidation to allow the 10 day MA to catch up to price.

The decline into the ICL has stretched the ‘elastic band’ lower. This quick recovery is a very good sign. A bullish break higher could trigger a final melt-up phase.

Simple Silver Plan

Silver has been consolidating below the 24 level for the past 3 weeks.

A bullish break out of consolidation could lead to a trending move. A simple plan would be to buy the break above 24.00. Add on a close above the 50 day MA. Then add again on a close above the 200 day MA. The first stop would be a close back in consolidation. The next would be a close back below the 50 day MA. Then once above the 200 DMA, using that as the stop.

Bullish Set-Ups

The following are some bullish set-ups that caught my attention.

Since late January DRI has been in a daily uptrend that has been characterized by highs forming above the upper daily cycle band and lows forming above the lower daily cycle band. DRI formed a swing low on Thursday, closing above both the 10 day MA and the upper daily cycle band, then delivered bullish follow through on Friday. Forming a swing low above the lower daily cycle band signals that DRI will remain in its daily uptrend and triggers a cycle band buy signal.

DRI did get a bit stretched above the 10 day MA, similar to early February. Waiting on a tag of the 10 day MA may result in a better entry.

NSA has also been in a daily uptrend that has been characterized by highs forming above the upper daily cycle band and lows forming above the lower daily cycle band. NSA formed a swing low on Friday, closing above both the 10 day MA and the upper daily cycle band. Forming a swing low above the lower daily cycle band signals that NSA will remain in its daily uptrend and triggers a cycle band buy signal.

BIDU backtested a former consolidation zone and the 200 day MA. It formed a bullish reversal on massive volume. A position can be started on a swing low and added to with a close above the 50 day MA.

Stocks Drop

Stocks dropped on Thursday.

Stocks have been very bullish as they are in the advancing phase of their intermediate cycle. During the advancing phase of the intermediate cycle RSI does not stay oversold for long. So if RSI reverses quickly then it is likely that stocks are declining into a half cycle low.

However, closing below the 200 day MA has me thinking something more sinister is afoot. Stocks gapped below the 10 day MA to close 5.89% lower on Thursday. This has started to turn the 10 day MA lower – which signals the daily cycle decline. A peak on day 16 has the possibility of resulting in a left translated daily cycle formation, which would signal the start of the intermediate cycle decline. Which is something that I plan to discuss in the Weekend Report.

Status of the Daily Equity Cycle

Stocks remain volatile. There are reasons to be bullish and reasons to be bearish.

Reasons to be bullish:
* The 10/29 cycle low placed stocks very deep in the timing band for an intermediate cycle low. Stocks are due for a multi-week rally.
* The initial thrust out of that low was the most powerful thrust out of a cycle low since the 2016 multi cycle low, which we discussed here.
* There is a bullish RSI pattern that is developing.
* The True Strength Indicator is trending higher.

Bearish concerns:
* Stocks are in a daily downtrend.
* Stocks have closed below both the 200 day MA and the 10 day MA.
* By closing lower on Monday, stocks have caused the 10 day MA to begin to turn lower.

One more reason to be bullish
* Stocks remain above the daily cycle trend line.
After peaking on day 7 stocks broke lower forming a pivot on day 13. The swing low that formed off the day 13 candle allowed us to construct the daily cycle trend line. While stocks did close lower on Monday, they remained above the newly constructed trend line. If stocks can form another swing here, that would give stocks the chance to regain the 10 DMA and the 200 DMA. However, if stocks break lower here and close below the daily cycle trend line, then that would signal a left translated daily cycle formation and a continuation of the intermediate cycle decline.

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Bullish Conviction

Despite stocks dropping further on Tuesday, I maintain my bullish conviction.

When stocks printed their cycle low on October, they were very late in their timing band for forming an intermediate (weekly) cycle low. Therefore the new daily cycle has very good odds of also initiating a new intermediate cycle.

The powerful thrust out of the cycle low (which was discussed here) caused stocks to leave behind 2 gaps. One of those gaps was filled on Monday. Tuesday’s lower low has positioned stocks to fill that lower gap.

Despite stocks closing lower for 4 days, there are some indicators that align with stocks emerging from their intermediate cycle low. First off, there is an emerging bullish pattern developing on RSI. Even though stocks were down for 4 straight days, RSI is not oversold. If RSI prints a reversal after testing oversold that would indicate that stocks are advancing in a new intermediate cycle.

Another indication that stocks are in a new intermediate cycle are the Buying on Weakness days that are beginning to cluster. Stocks printed another 170 million in Buying on Weakness on Tuesday. We have seen that predictive value of these BOW days rises the more these days cluster. And the additional BOW day on Tuesday brings the recent total to over 1 billion BOW.

Bullish Breakout

Stock broke out to new highs on Thursday.
Breaking out to new highs is a bullish development.
Traders may feel compelled to buy the breakout,
thinking that stocks are beginning another leg up.
Cycles tells a different story.

Thursday was day 25 for the daily equity cycle, placing stocks 5 days shy of its timing band for a daily cycle low. More importantly stocks are on week 32 for the intermediate equity cycle, placing stocks deep in their timing band for an intermediate cycle decline.

That intermediate cycle decline can unfold in one of 2 scenarios. The first scenario is for the currently daily cycle to fail, leading to stocks printing their intermediate cycle low. Stocks would need to break below the previous daily cycle low of 2808.49 to form a failed daily cycle. A peak on day 25, or later, indicates a right translate daily cycle formation. So if this daily cycle were to fail, it would likely unfold as a semi crash

The other scenario would be an improbable 6th daily cycle. A failed daily cycle is needed to complete an intermediate cycle decline. If the current daily cycle prints a higher low, then stocks would need another daily cycle to usher in the the intermediate cycle decline. This new daily cycle would need form as a left translated daily cycle resulting with stocks printing an intermediate cycle low.

Only one intermediate cycle since 2009 (19 intermediate cycles) has exceeded 32 weeks. That cycle ran 35 weeks. This indicates that in either scenario, any gains here will likely be given right back when stocks begin their intermediate cycle decline.

Following The Leader

On Monday we discussed how stocks are rallying out of a half cycle low and following the market leaders higher. The Semi’s provided more leadership on Thursday.

The Semi’s have fully recovered from their dip into their half cycle low. On Thursday, the Semi’s began a breakout from their all time highs.

The Advance/Decline Line has also broke out to a new daily cycle high.
And these are bullish signals for the general market.

Thursday was day 18 for the daily equity cycle. Stocks closed above the 10 day MA and tested the 50 day MA. We should see stocks follow the semi’s higher. A break above the day 11 high of 2789.15 would form a higher high and assure us of a right translated daily cycle formation.