Stocks are going through a volatile bottoming phase.
Stocks lost the 50 day MA on Wednesday, regained it on Thursday, lost it again on Friday and then regained it again on Monday. Stocks also formed a swing low on Monday. With stocks are in their timing band for a DCL, a close above the 10 day MA will signal a new daily cycle.
Stocks are heading into the most bullish time of the year. If stocks can quickly breakout above the all-time high of 4743.83, that could trigger a melt-up phase.
Oil dropped over 13% on Friday to extend its daily cycle decline.
Oil printed its lowest point on Friday, day 67, placing oil very deep in its timing band for a DCL. At this late stage of the daily cycle, a swing low and close back above the 200 day MA will have good odds of marking the DCL.
So, while oil could potentially begin a new daily cycle next week, Friday’s huge drop is a game changer that will likely send oil into an intermediate and yearly cycle decline. Which I further discuss in the Weekend Report.
Stocks have broken above the previous all all time highs.
Stocks are delivering bullish follow through on the breakout of the 4545.85 level which could trigger a melt-up phase. However, I suspect that a daily cycle decline will backtest the breakout level before the we see the melt-up phase.
Stocks are currently getting stretched above the 10 day MA. At 25 days, stocks are 5 days shy of their timing band for a DCL. A daily cycle decline would allow stocks to backtest the breakout level and allow sentiment to cool off. This would also allow stocks to emerge from a DCL heading into the most bullish time of the year.
Tuesday was day 21 for the daily equity cycle. The new high on day 21 shifts the odds towards a right translated daily cycle formation. That aligns with stocks being in a daily uptrend. Stocks will remain in their daily uptrend unless they close below the lower daily cycle band.
The decline into the ICL stretched the ‘elastic band’ lower. Stocks are delivering bullish follow through on the breakout of the 4545.85 level. This could trigger a melt-up phase.
Gold closed below both the 200 day MA and the 10 day MA on Friday to signal the daily cycle decline. Gold should go on to turn the 10 day MA lower as it seeks out its DCL.
But today, I want to focus in on the big picture.
Gold is in a monthly triangle consolidation. In a triangle consolidation the cycle low can migrate to the apex of the triangle. A break out of this multi- year consolidation should result in a powerful trending move.
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 delivered bullish follow through on Thursday by closing above the converging 10 day MA and 50 day MA to confirm the new daily cycle. Stocks should go on to break above the declining trend line as they rally out of their DCL.
It is quite likely that Monday was not only the DCL but the intermediate cycle low (ICL) as well. And if stocks can quickly break out to new highs then that may trigger a final melt up.
Stocks broke below the previous daily cycle low on Monday. Breaking below the previous daily cycle low forms a failed daily cycle and confirms the intermediate cycle decline.
Stocks are on week 29 for the intermediate cycle. This places them very deep in their timing band for an intermediate cycle low. The odds are very good that once a daily cycle low forms, that it will also mark the intermediate cycle low as well.
Stocks are currently in a weekly uptrend and are already in the process of forming a bullish weekly reversal. If stocks form a weekly swing low above the lower weekly cycle band then they will remain in their weekly uptrend and trigger a weekly cycle band buy signal.
The dollar regained the 50 day MA on Monday then delivered bullish follow through on Thursday and Friday.
The dollar closed above the upper daily cycle band on Friday. Closing above the upper daily cycle band ends the daily downtrend and begins a new daily uptrend.
Stocks closed below the 50 day MA on Friday.
Closing below the 50 day MA signals the daily cycle decline. The peak on day 10 sets stocks up for a left translated daily cycle formation. A break below the previous DCL of 4367.73 will from a failed daily cycle to confirm the intermediate cycle decline. Stocks are currently in a daily uptrend. But a close below the lower daily cycle band will end the daily uptrend and being a daily downtrend.
Oil was running into resistance at the 50 day MA for the past week before closing below the 10 day MA on Thursday.
The bigger picture shows that oil is a pattern of forming lower highs and lower lows. A break below the 67.00 support level will signal the daily cycle decline. The peak on day 8 indicates a left translated daily cycle formation that aligns with oil being in a daily downtrend. Oil will remain in its daily downtrend unless it closes above the upper daily cycle band.