Reason #1– The 50 day MA. Since the March ICL the 50 day MA has been acting as support.
Reason # 2– RSI 05. Stocks are in an intermediate cycle advance that has been characterized by RSI embedding in overbought and having quick reversals once oversold. A quick bullish RSI reversal would indicate that stocks are resuming their intermediate cycle advance.
Reason # 3 – Cycle Band Buy Signal. Stocks are currently in a daily uptrend. If stocks form a swing low above the lower daily cycle band then stocks will remain in their daily uptrend and trigger a cycle band buy signal.
The Miners printed their ICL in early March. The first daily cycle peaked just below the 200 day MA. The resulting daily cycle decline saw the Miners backtest the declining multi month trend line. The Miners rallied off of the declining trend line and now are testing the 200 day MA. A close back above the 200 day MA will signal a major change of trend.
Stocks printed and another higher high on Tuesday.
The decline into the week 23 low did not come as a result of a failed daily cycle. The decline only caused stocks to close below the 10 week MA for 1 week and did not even turn the 10 week MA lower. So there are several criteria for an ICL that has not been satisfied.
But I am not going to over-think this one. The week 23 low was the timing band for an ICL. In this environment of a new president just passing a truly massive stimulus package on top of the record amount of money printing that has been ongoing – this is probably all we will see for an intermediate cycle decline so we will label week 23 as the ICL.
On Saturday we observed that stocks were breaking out to new highs.
On Tuesday we can see that the breakout continues. Unless stocks close back below the ‘Line in the Sand’, I will continue with the assumption that stocks are now advancing into a new intermediate cycle.
Stocks printed their lowest point on Monday, day 68, placing them very late in their timing band for a DCL. Tuesday’s swing low signals a new daily cycle. A break above the declining trend line will confirm the new daily cycle.
Stocks are on week 26, placing them in their timing band for an intermediate cycle low. While most ICL’s have a failed daily cycle en route to printing the ICL, on a rare occasion some don’t. And this may be one of those times that they don’t. If stocks can close back above the upper daily cycle band that would end the daily downtrend and begin a new daily uptrend. It will also indicate that the intermediate cycle low has been left behind.
Which brings us back to the megaphone topping pattern we discussed on September 14th.
Stocks appear to have delivered a classic false breakout from this megaphone topping pattern. With stocks in their timing band for an intermediate cycle decline – this could trigger the intermediate cycle decline and a revision to the mean. But with the historic amount of liquidity the Fed has been providing to the market — this could be all the daily cycle decline we get.
So if day 68 is the DCL and stocks manage to break above the previous daily cycle high that would mean that a bubble scenario is still on the table.
Stocks rallied on Tuesday to print a higher daily cycle high.
This has caused stocks to form a weekly swing low.
Stocks printed their lowest point last week. At 38 weeks, that places stocks deep in their timing band for an intermediate cycle low. Stocks have already confirmed a new daily cycle. And now that stocks have formed a weekly swing low, it increases the odds that week 38 hosted the ICL.
The first daily cycle should form as a right translated daily cycle, which means that the daily cycle should peak after day 20. With Tuesday being only day 6, that leaves stocks at least 3 more weeks to go before expecting the daily cycle to peak.
Stocks formed a swing low and delivered a convincing 2.15% rally on Tuesday which indicates me that day 40 hosted the daily cycle low.
I had a concern about that the 764 million Selling on Strength that printed on Friday indicated that an undercut low was in the cards. While we still need to see a close above the 10 day MA to signal a new daily cycle, the strength of Tuesday’s rally convinces that day 40 was the DCL. And with such a strong thrust that I suspect that Thursday also marks the ICL.
The McCellan Oscillator closed above the 50 day MA on Tuesday. This is similar to the type of thrust that was demonstrated during the last 2 ICL’s.
The yearly cycle low presents the best likelihood of gains for any asset class.
This is month 16 for the yearly steel cycle. Steel normally prints a YCL every 10 – 12 months so at 16 months it is very deep in its timing band to print a yearly cycle low. And steel is forming a bullish monthly reversal, which will ease the parameters for forming a yearly cycle low.
A yearly cycle low cannot form unless an intermediate cycle low is also forming …
Steel printed its lowest point his past week, week 24, placing still in its timing band for an ICL. The bullish weekly reversal eases the parameters for forming a weekly swing low. A break above 43.656 forms a weekly swing low to signal the new intermediate cycle. A break above the declining trend line will confirm the new weekly cycle.
And just like a yearly cycle low cannot form unless an intermediate cycle low has also formed, an intermediate cycle low cannot form unless a daily cycle low has also formed.
Steel printed its lowest point on Tuesday, day 18, placing it in its timing band for a DCL. A swing low formed on Wednesday, then steel broke above the declining trend line to close above the 10 day MA on Friday to confirm a new daily cycle.
Confirming the new daily cycle is a signal that a new intermediate cycle has begun.
And if a new intermediate cycle has begun, then that signals that a new yearly cycle has also begun.
My thanks to Andrew who alerted me that steel was in the process of forming multiple cycle lows ;0)
An opportunity is developing in the emerging markets.
The emerging markets (EEM) have been averaging a yearly cycle low every 9.8 months. EEM last printed a yearly cycle low on November, 2017. With July being 20 months since EEM last printed an identifiable yearly cycle low that makes EEM overdue for its YCL. EEM did peak in January, month 14, and has been in decline ever since. Once a new intermediate cycle begins, it will likely also mark the beginning of the new yearly cycle.
The emerging markets (EEM) have been averaging an intermediate cycle low every 21. weeks. EEM last printed an intermediate cycle low in February, 2018. This week makes it 21 weeks since EEM last printed an identifiable intermediate cycle low. Which places EEM in its timing band for an ICL. Once a new daily cycle begins, it will likely also mark the beginning of the new intermediate cycle.
The emerging markets (EEM) have been averaging a daily cycle low every 18.5 days. EEM last printed an identifiable DCL on May 29th. EEM printed its lowest point on Thursday, 6/28. At 22 days that places EEM in its timing band for a DCL. A swing low has already formed. A close above the 10 day MA will signal a new daily cycle. The new daily cycle should trigger a new intermediate cycle and a new intermediate cycle should also trigger the new yearly cycle.
On Monday we discussed how the Miners had formed a weekly swing low off of support from the 200 week MA to indicate that week 22 was the intermediate cycle low. The Miners have provided more evidence that week 22 hosted the ICL.
The Miners have now broke above the declining weekly trend line. Since week 22 is in the normal timing band for an intermediate cycle low, the declining trend line break provides further confirmation that the Miners are now in week 1 of their new intermediate cycle.
And what I believe is helping the Miners to rally out of an intermediate cycle low is the dollar beginning its final intermediate cycle decline.
The dollar printed its lowest point following the week 9 peak. A brief counter-trend rally followed where the dollar managed to regain the 200 week MA. However the dollar has now convincingly lost the 200 week MA. This is week 15 placing the dollar 3 weeks shy of its timing band for an intermediate cycle low. The dollar needs to break below the week 12 low of 92.43 in order to complete its intermediate cycle decline. And with the dollar declining into its intermediate cycle low, that should help to propel the Miners higher.