Stocks Deliver a Bearish Signal

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Stocks formed a daily swing high on Tuesday.

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Tuesday was day 22 for the daily equity cycle. Stocks formed a swing high off the day 21 peak. A break below the daily cycle trend line will signal that the daily cycle is in decline.

Usually a peak on day 21, or thereafter, assures us of a right translated daily cycle formation. However, due to the status of the intermediate cycle I believe that the current daily cycle is still at risk of forming as a left translated, failed daily cycle. A break below the previous daily cycle low of 2352.72 forms a failed daily cycle, which confirms that the intermediate cycle is in decline.

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This is week 33 for the intermediate cycle. The weekly cycle is stretched and overdue for an intermediate cycle decline. So confirmation of the daily cycle decline could trigger the intermediate cycle decline as well.

Its About Time …

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Stocks formed a daily swing low on Monday.

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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.

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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

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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.

A Low is Nigh

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The daily equity cycle peaked on day 40, formed a swing high and began its daily cycle decline. Thursday’s bullish reversal could mark the daily cycle low.

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Thursday was the lowest point following the day 40 peak. At 46 days stocks are deep in their timing band to print a daily cycle low. Thursday’s bullish reversal has eased the parameters for forming a swing low. A break above 2369.08 forms a swing low and has good odds to mark the daily cycle low.

Normally we would like to see break below the daily cycle trend line before looking for a daily cycle low. But this daily cycle is extremely right translated and it does not look like the daily cycle decline will break the daily cycle trend line.

Setting aside the trend line break there are other signals that help to determine a daily cycle low. Timing band is one of the criteria. Seeing the TSI deliver a bearish zero line crossover and the formation a weekly swing are normally present as stocks decline into a daily cycle low.

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And stocks have formed a weekly swing.

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The is week 18 for the intermediate equity cycle. Stocks have entered their timing band to seek out an intermediate cycle low. With a right translated daily cycle formation assured, stocks will need one more daily cycle in order to complete the intermediate cycle decline. Allowing 6 – 8 weeks for the completion of one more daily cycle will take the intermediate cycle deep into its timing band for an intermediate cycle low. Therefore we will watch for signs that the impending new daily cycle will form as a left translated, failed daily cycle.

Stocks Begin Their Daily Cycle Decline

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The daily equity cycle peaked last week on day 26. Stocks formed a swing high the next day but then drifted sideways for the next few days. Thursday’s break below the daily cycle trend line signals that stocks have begun their daily cycle decline.

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A peak on day 26 locks in a right translated daily cycle formation and sets up the expectation for stocks to print a higher daily cycle low. With Thursday being day 33, stocks should print a daily cycle low over the next 5 to 15 days. Stocks continue to close above the upper daily cycle band which indicates that stocks are in a daily uptrend. Stocks will remain in their daily uptrend unless they close below the lower daily cycle band.

Stocks Deliver Bullish Follow Through

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Stocks delivered bullish follow through on Tuesday to confirm that Friday hosted the daily cycle low.

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Tuesday was day 2 for the daily equity cycle and stocks closed solidly above the accelerated declining trend line. Stocks also delivered a bullish zero line crossover on the True Strength Indicator. While not all TSI bullish zero line crossovers mark a daily cycle low, all DCL’s are accompanied by a TSI bullish zero line crossover. If stocks manage to close above the upper daily cycle band that will indicate an end of the daily downtrend.

The Miners remain in a daily downtrend.

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Tuesday was day 20 for the daily Miner cycle. That places the Miners in their timing band for a daily cycle low. A swing low and a close above both the 10 day and 200 day MA would signal that the Miners have printed a daily cycle low. Then a close above the upper daily cycle band would signal an end to the daily downtrend.

Failed Daily Cycle

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Stocks broke below their previous daily cycle low on Thursday, forming a failed daily cycle.

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Thursday was day 23 for the daily equity cycle. That leaves stocks 7 days shy of entering its timing band for a daily cycle low. And now that the technical level of support from the previous daily cycle low was broken, we should see 7 to 10 days of panic selling before stocks print their final daily cycle low.

Instead stocks closed just off their highs for the day forming a bullish reversal. That eases the parameters for forming a daily swing low. Since the last daily cycle was a bit extended at 53 days it is reasonable to see a slightly shortened daily cycle to follow, which would balance out the daily cycle counts. A daily swing low and a break of the declining trend line would be necessary to confirm a new daily cycle.

So if stocks do form an early daily cycle low, let’s look to see what happens to the weekly cycle.

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The intermediate equity cycle peaked on week 7, formed a weekly swing high and then began its weekly cycle decline. A peak on week 7 sets up as a left translated cycle formation. So if a new daily cycle did begin this week it is too early too see an intermediate cycle low form here. So one more daily cycle would be needed to usher in the intermediate cycle decline.

So it makes me wonder if someone saved the markets today …

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Gravitational Pull

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The daily equity cycle peaked on day 8 and has since been finding support along the 2145 level. Stocks broke convincingly below the 2145 level on Tuesday.

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Tuesday was day 21 for the daily equity cycle. Stocks not only broke below the support at the 2145 level but they also closed below the lower daily cycle band. While it is possible that stocks are moving into a half cycle low, often times a close below the lower daily cycle band signals that stocks are feeling the gravitational pull of their impending daily cycle low. With Tuesday being only day 21, that leaves stocks another 9 days before they enter their timing band for their daily cycle low. The peak on day 8 sets this up as a left translated daily cycle formation. A break below the previous daily cycle low of 2119.12 forms a failed daily cycle and confirms that stocks have entered into their intermediate cycle decline.

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The intermediate equity cycle sports a week 7 peak. This is week 15 and stocks have made 7 consecutive lower weekly highs and looks to be printed its 8th straight lower high. So stocks also appear to being pulled into an impending intermediate cycle low as well. The peak on week 7 sets this up as a left translated weekly cycle formation. Since week 11 is the current weekly low, stocks would need to break below the week 11 low in order to complete their intermediate cycle decline.

Equity Cycle Low is Nigh

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Stocks printed their lowest point on Monday following the day 34 peak. Monday was day 53 for the daily equity cycle. That places stocks late in their timing band to print a daily cycle low.

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Even though stocks closed lower on Tuesday and Wednesday, stocks did not break below Monday’s low. With a strong bullish divergence that is developing on the True strength Indicator along with stocks being late in their timing band for a daily cycle low makes it look as if Monday hosted the daily cycle low. A break above 2163.30 will form a daily swing low to signal a new daily cycle.

The NASDAQ Composite has already formed a daily swing low.

The NASDAQ also printed its lowest point on Monday following its daily cycle peak. After consolidating Tuesday and Wednesday the NAS broke higher on Thursday to form a daily swing low which signals a new daily cycle. The NAS also managed to close above the upper daily cycle band. This indicates that the NASDAQ is re-estblishing its daily uptrend and is leading stocks out of their daily cycle correction.

Late in the Timing Band

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Stocks printed their lowest point on Monday following the day 34 peak. Monday was day 53 for the daily equity cycle. That places stocks late in their timing band to print a daily cycle low.

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Stocks nearly recovered all of Friday’s drop. Closing near the highs of the day also has eased the parameters for forming a daily swing low. A break above 2163.30 will form a daily swing low. Then a close above the 10 day MA should allow us to label Monday as the daily cycle low.

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Stocks did close below the lower daily cycle band on Friday, indicating an end to the daily uptrend. But since stocks have not closed below the lower weekly cycle band they still remain in a weekly uptrend. Stocks will continue in their weekly uptrend unless they close below the lower weekly cycle band.

The 8/11/16 Morning Report

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The daily equity cycle peaked on day 31. Then it formed a swing high on Wednesday to signal the daily cycle decline.

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While stocks did break below the daily cycle trend line on Wednesday, more bearish follow through is needed to confirm the daily cycle decline. A close below the 10 day MA would provide such assurance.

However, stocks are in a daily uptrend. Stocks will remain in an uptrend unless they close below the lower daily cycle band.

Biotech did provide bearish follow through on Wednesday.

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IBB formed a daily swing high on Monday. It delivered bearish follow through on Wednesday by breaking below the daily cycle trend line in a clear and convincing manner to confirm its daily cycle decline. Like stocks, IBB is in a daily uptrend. It will remain in a daily uptrend unless it closes below the lower daily cycle band.