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.

Stocks Deliver Bearish Follow Through

Stocks closed below the 10 day MA on Friday to signal the daily cycle decline. Stocks went on to deliver more bearish follow through on Monday.

Monday was day 44, placing stocks deep their timing band for a daily cycle low.  Stocks are on day 2 of their bloodbath phase, which could last 5 to 7 days. Stocks will still need to turn the 10 day MA lower before the DCL can form. Stocks should then go on to break below the (blue) daily cycle trend line as they seek out their DCL. However, we could see the 50 day MA provide support for the DCL to form, which happens to be about the 50% Fib level.  Stocks are currently in a daily uptrend.  They will remain in their daly uptrend unless they close back below the lower daily cycle band. 

PreviewThe 8/13/22 Weekend Report

The Dollar 

The dollar broke below the day 25 low on Wednesday to extend its daily cycle decline.

The dollar printed its lowest point on day 32, placing it deep in its timing band for a DCL. The dollar formed a swing low and closed above the 50 day MA on Friday to signal the new daily cycle. A close above the 10 day MA will have us label day 32 as the DCL. The dollar should go on to break above the declining trend line as it rallies out of its DCL. The dollar closed below the lower daily cycle band on Wednesday. Closing below the lower daily cycle band ends the daily uptrend and begins a daily downtrend. Closing below the lower daily cycle band signals that the intermediate cycle decline has begun.  

Stocks

Stocks broke above the 4150 resistance level on Monday then delivered bullish follow through on Friday.

Friday was day 38, placing stocks deep their timing band for a daily cycle low.  Breakouts that come late in the daily cycle are almost always given back once the daily cycle decline begins. A swing high and close below the accelerated (dashed) trend line will signal the daily cycle decline. Stocks will need to turn the 10 day MA lower before the DCL can form. Stocks should then go on to break below the (blue) daily cycle trend line as they seek out their DCL. Stocks are currently in a daily uptrend.  They will remain in their daly uptrend unless they close back below the lower daily cycle band. 

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Minor Risk On Miner Entry – Still In Play

On Wednesday we discussed that if the Miners formed a swing low on Thursday, that would represent a low-risk entry. However the Miners broke lower on Thursday to extend their daily cycle decline.

Thursday was day 43, placing the Miners deep in their timing band for a daily cycle low.  The odds are good that a swing low and close above the 10 day MA will mark the DCL. The Miners formed a bullish reversal on Thursday, once again easing the parameters for forming a daily swing low and keeping the minor risk entry still in play. A bullish entry can be taken on a swing low, placing the stop below Thursday’s low of 24.92. A break above 25.89 will form a swing low.  Then a close above the 10 day MA will signal the new daily cycle. 

Minor Risk On Miner Entry

The Miners broke below the day 37 low on Wednesday to extend its daily cycle decline.  

Wednesday was day 42, placing the Miners deep in their timing band for a daily cycle low.  The odds are good that a swing low and close above the 10 day MA will mark the DCL. Wednesday’s bullish candle eases the parameters for forming a swing low. A bullish entry can be taken on a swing low, placing the stop below Wednesday’s low of 26.03. A break above 27.38 will form a swing low.  Then a close above the 10 day MA will signal the new daily cycle.  

Stocks Need To Cross The Line

Stocks are up over 2% this week, confirming that June 17th marked the daily cycle low. But, stocks are not out of the woods yet.

Stocks are approaching the intermediate down trend line. Stocks will need to close above the declining intermediate trend line to signal that June 17 marked not only the daily cycle low, but the intermediate cycle low as well.

We need to keep in mind that stocks were rejected quite convincingly the previous two times that stocks approached this line. So it will not be surprising to see some volatility even if June 17th did mark the intermediate cycle low.

Consolidation

The rally out of the day 19 DCL has caused stocks to become stretched above the 10 day MA.

Monday was day 5 for the new daily cycle. Stocks may need to consolidate in order to allow the 10 day MA to turn higher and then catch up to price. Stocks will need to break above the declining trend line and close above the declining 50 day MA in order for a trending move to develop.

Stocks: Bullish Development But Still Need To Cross The Line

Stocks closed above the declining 10 day MA on Thursday

Stocks printed their lowest point on Friday, day 19, which is very early for a DCL. But with the previous daily cycle being stretched at 60 days, a shortened daily cycle would help to balance out the cycle counts.  We will Thursday’s close above the 10 day MA to label day 19 as an early DCL. Stocks still need to break above the 3943 resistance level and turn the 10 day MA higher to be assured that day 19 did, indeed, host an early DCL.

Miners Form Failed Daily Cycle

The Miners broke below the previous daily cycle low on Tuesday.

Breaking below the previous daily cycle low forms a failed daily cycle and extends the intermediate cycle decline. There are bullish divergences developing on the oscillators that often herald the cycle low. And with the Miners being in their timing band for an intermediate cycle low, the odds are good that once the DCL forms it will mark the ICL as well.

Bullish Expectations

Stocks found support at the 10 day MA on Tuesday.

The initial surge out of the DCL caused stocks to get stretched above the 10 day MA. Stocks have been coiling to allow the 10 day MA to catch up to price. Stocks should go on to break above the declining trend line as they rally out of their daily cycle low.

Notice the change in behavior for RSI 05. Prior to the DCL, RSI 05 was embedding in oversold which is characteristic of the declining phase of the intermediate cycle. That is beginning to change. If RSI 05 embeds in overbought that will signal that stocks are now in the advancing phase of a new intermediate (weekly) cycle.