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.
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.
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.
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.
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 …
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 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.
The evidence continues to accumulate indicating that stocks have formed their daily cycle low.
Stocks formed a swing low last week and followed up on Monday by closing above both the 10 day MA and the declining trend line to signal a new daily cycle.
The Dow, the Russell, the Nasdaq and the Transports all followed suit. While stocks still need to turn the 10 day MA higher, it looks more and more like stocks have printed their DCL.
However stocks have delivered some conflicting signals.
On Thursday, 12/26. stocks printed a huge SOS number
And once again on Monday, 12/31
Stocks should not be printing large Selling on Strength days once they formed their final DCL of the intermediate cycle. Not only are stocks printing large SOS days as they emerge from their cycle low, these are the kind of numbers associated with a decline into a multi year cycle low. The last time we saw these type of SOS numbers was at the last DCL.
As stocks emerged from the last DCL they printed similar SOS numbers. Which lead to a volatile stretch that ended with a bloodbath decline into the 12/26/18 low. Even if 12/26 was not only the daily cycle low but the intermediate cycle low these large SOS numbers indicate more volatility and perhaps a retest of the recent low.