Bullish Divergence

Stocks formed a swing low and closed back above the 10 day MA on Friday.

While Friday’s develop is encouraging that day 19 was the DCL, stocks remain below the 50 day MA and is in a daily downtrend.

The Nasdaq also had a bullish Friday but remain below both the 10 day MA and the 50 day MA.

The Dow formed a swing low and closed back above the 10 day MA on Friday. But remains below the 50 day MA and is in a daily downtrend.

The Russell also formed a swing low and closed back above the 10 day MA on Friday. But still remains below the 50 day MA and is in a daily downtrend.

I discuss in the Weekend Report how stocks appear to have formed their daily cycle low, intermediate cycle low and is in the process of forming the yearly cycle low. This decline into the YCL has been difficult and sentiment became very bearish. We need to keep in mind the best opportunity for gains follow a yearly cycle low — which appears to be forming. And Biotech is the early leader of the pack

Waiting For Stocks To Cross The Line

The Dow Jones Industrial is seeking out its DCL.

The Dow broke below the daily cycle trend line, turned the 10 day MA lower, and is in its timing band for a daily cycle low. And Thursday’s bullish reversal eases the parameters for forming a daily swing low. A swing low and break above the declining trend line will signal a new daily cycle.

It’s questionable if day 27 represents a DCL for the Nasdaq. However, the tech heavy Nasdaq is breaking out to new highs. The Nasdaq is currently in a daily uptrend. Breaking out to a new high signals a continuation of the daily uptrend and triggers a cycle band buy signal.

The broader S & P has been consolidating for almost the past 2 weeks. A break below the day 27 low of 4630.66 should see stocks complete their daily cycle decline. But with the Nasdaq breaking out to new highs, it is possible for the S & P to follow. A break above the day 27 high of 4718.50 will shift the odds of stocks entering a melt-up phase and stops should then be raised to the new breakout level.

The Nasdaq Breaks Through Resistance

On Monday we noted that the Nasdaq was running into resistance at the 10 day MA and 50 day MA.

We concluded that the Nasdaq needed to break above the resistance from these moving averages in order for this daily cycle advance to gain traction. The Nasdaq delivered bullish follow through on Thursday.

The Nasdaq backtested the day 41 low on Wednesday, forming a double bottom. On Thursday, the Nasdaq broke above the 10 day MA to close above the 50 day MA. This caused the 10 day MA to begin to flatten out so we will label day 41 as the DCL. The Nasdaq may still need to consolidate in order for the 10 day MA to flatten out some more before it can turn higher. You will notice that back in April the Nasdaq needed another 10 days after initially closing above the 50 day MA before the rally gained any traction.

Resistance and the Nasdaq

Stocks are emerging from their daily cycle low.

The Transports back tested their 10 day MA.

The Industrials also back tested their 10 day MA.

While the Banking Index managed to close at a new all time closing high.

However, the Nasdaq remains contained by the 10 day MA and the 50 day MA. The Nasdaq needs to break above this resistance before the rally can gain traction.

Intermediate Cycle Decline

Stocks broke lower again on Thursday to close below the 50 day MA.

Stocks also closed below the lower daily cycle band on Thursday. Closing below the lower daily cycle band ends the daily uptrend uptrend begins a daily downtrend, giving us the expectation of lower highs and lower lows. The peak day 11 sets stocks up for a left translated daily cycle. A. break below the previous daily cycle low of 3694.12 will form a failed daily cycle.

The Nasdaq formed a failed daily cycle on Thursday. In the Weekend Report we will look at the intermediate (weekly) cycle in order to develop expectations for the intermediate cycle low.

Assuming Leadership

Stocks are seeking their daily cycle low.

The S & P formed a swing low

The Dow formed a swing low

The Nasdaq formed a swing low and closed above the 10 day MA.

The Banks have yet to form swing low

The Semi’s have yet to form swing low

Not only did Biotech form a swing low, they closed for a 2.5% gain on Friday.

With Biotech breaking out of a multi year consolidation they are indicating a readiness for assuming market leadership.

BOOM

We are starting to see failed yearly cycles in the major indices.

Stocks printed their last yearly cycle low in December, 2018. The Dow, The Russell, The Nikkei, The Dax and the Euro Stock 50 have all broken below their pervious yearly cycle lows. I think that it is just a matter of ‘when’ not ‘if’ the S&P and the Nasdaq also follow suit. Breaking below the previous yearly cycle low forms a failed yearly cycle and confirms the 4 year cycle decline. In the Weekend Report I plan to take a break down the 4 year cycle for stocks.

Off to the Races

Back in June we looked at the Semi Conductors

We discussed how the Semi’s were poised to begin the next leg up in their bull market.

This week the Semi’s are breaking out to new highs.

The big picture is that the Semi’s had close to a 20 year consolidation. They broke above the multi year consolidation in 2017 and then crawled along that resistance level for 2 years. They have now broken out to new highs to begin the next leg up in its bull market.

This is very similar to what the Nasdaq went through.

The Nasdaq had a multi year consolidation. Once it broke above it crawled along its resistance level for 2 years before breaking higher and then it was off to the Races …

Lower Lows

The Transports, the Banks, the Nasdaq and the Russell all printed lower lows on Thursday.


However the S&P did not print a lower low.

Stocks printed their lowest point on day 45, placing them in their timing band for a daily cycle low. Stocks did form a swing low and managed to close above the 50 day MA to signal a new daily cycle. However, stocks have not been able to break above the declining trend line to confirm a new daily cycle. That makes Thursday day 53 for the daily equity cycle.

A daily cycle low is defined as the lowest point following the cycle peak. Since the other indices and sectors formed lower lows, I expect that stocks will too. Stocks should break below the day 45 low in order to complete its daily cycle decline. Once that happens the formation of a daily swing low will have good odds of marking the daily cycle low.

The Train is Leaving the Station

The following is an expert from the Weekend Report.

The Nasdaq went through a multi year consolidation from 2000 to 2014.


The Nas finally did break above the multi year consolidation and then crawled along resistance. But once it broke out it was off to the races …

A similar set up is happening with the semiconductors.

The semi’s went through a multi year consolidation from 1999 to 2017. They then crawled along resistance and now looks to be breaking free.

The perfect entry would have been on 12/24/18. If you do not have a position, there will not be another perfect entry. Jumping in now does risk a drawdown. Not jumping in now risks the train leaving without you. And it does look like the train is leaving the station.