Major Resistance for the Miners

We discussed last week how there is a change in behavior for the Miners. RSI being embedded in overbought along with the Miners closing above the upper daily cycle band are characteristic of a new intermediate cycle.

The Miners lost the 200 day MA in June and have been unable to close back above it. For the past few days the Miners have been consolidating the break above the 50 Day MA. If (once) they break higher, then 200 day MA is the next area of major resistance for the Miners. The odds that areas of resistance turning a cycle lower increase as the daily cycle matures, so there is a good chance that the 200 day MA will be a short-term top for the Miners.

3 Things to Watch Going Forward — Update

The 3 things that we are watching for going forward are:

  1. The Recovery of the 10 day MA.
  2. Right Translation.
  3. Resuming the intermediate cycle advance.
  1. Recovery of the 10 day MA. Stocks recovered the 10 day MA on Wednesday and started to turn the 10 DMA higher on Thursday.
  2. Right translation — In progress. Stocks still need to break above the day 15 high of 4393.68 to assure us of a right translated daily cycle formation.
  3. Resuming the intermediate cycle advance. In progress. RSI bullishly crossed the 50 line. Once RSI 05 becomes embedded again in overbought, that will signal the resumption of the intermediate cycle advance.

3 Reasons To Buy The Dip

Today we will look at 3 reasons to do so.

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.

A Miner Bullish Scenario

The Miners formed a swing low on Wednesday and delivered bullish follow through on Thursday.

While 19 days is a bit early to expect a DCL, the Miners did turn the 10 day MA lower as it declined into the day 19 low. And following a stretched 67 day DCL we could see a shortened cycle here, which will help to balance out the cycle counts.

There is a bullish zero line crossover on the True Strength Indicator, which often accompanies a DCL. And there is also a change in behavior on RSI 05. Prior to the day 67 DCL, RSI did not even get overbought before reversing and then embedded in oversold. That pattern is changing. The RSI became embedded in overbought during the peak of the pervious cycle. It reversed quickly once oversold and is now heading back up to overbought. If is embeds again in overbought that will be a good indication that the Miners are now in the advancing phase of a new intermediate cycle.

The Miners also managed to close above the 50 day MA on Wednesday. The 50 day MA has been a very difficult resistance for the Miners to overcome. But if the can deliver some bullish follow through here …

.. that would signal a major change in trend. Which will be a game changer

Bullish Reversal

After Wednesday’s big drop, the RSI index for stocks formed a bullish reversal on Thursday.

Stocks have not delivered anything that we could recognize as a daily cycle decline –until Wednesday.  Wednesday’s drop caused the RSI Index to become oversold. On Thursday, the RSI index formed a bullish reversal. The bullish RSI reversal is characteristic of stocks being in the advancing phase of its intermediate cycle.

Wednesday was day 59, placing stocks deep in its timing band for a daily cycle low. Stocks have been in a strong daily uptrend that has been characterized by highs forming above the 10 day MA and swing lows forming above the upper daily cycle band. If stocks form a swing low here that would signal a new daily cycle. If the swing low forms above the upper daily cycle band then stocks will remain in its daily uptrend and trigger a cycle band buy signal.

Stocks had a successful breakout of the megaphone pattern. But stocks got stretched above the 50 day MA. Wednesday’s drop has allowed the 50 day MA to catch up to price. A swing low off of support of the 50 day MA should resume the breakout.

Go Long

Stocks closed below the 10 day MA and back in the upper consolidation box on Monday, stopping us out.

However stocks regained the 10 day MA and managed to close back above the upper consolidation box on Tuesday. Notice that RSI did not even make all the way to oversold before reversing.

Which signals that break out of the megaphone pattern continues to advance.

Daily Cycle Correction

Stocks formed a swing high on Thursday.

Thursday was day 57 for the daily equity cycle. Which places stocks very deep in its timing band for a DCL. Stocks formed a swing high and closed below the accelerated trend line and the 10 day MA to signal the daily cycle decline. Stocks should close below the (blue) daily cycle trend line and turn the 10 day A lower in order to print its daily cycle low. With a peak on day 56, this daily cycle is extremely right translated which indicates that the daily cycle decline should be short (but violent) in terms of duration.

Stocks have been in a daily uptrend that has been characterized by highs forming above the upper daily cycle band and lows forming above the lower daily cycle band. If a swing low forms above the lower daily cycle band then stocks will remain in its daily uptrend and trigger a cycle band buy signal. Another indicator to watch is RSI. RSI has been embedded in overbought during the advancing phase of this intermediate cycle. Once RSI gets to oversold, if there is a quick reversal that will signal that stocks are continuing the advancing phase of its intermediate cycle. If RSI embeds in oversold that would indicate the beginning of the intermediate cycle decline.

Miners Throw Caution to the Wind

The Miners printed their lowest point last week on Tuesday, day 46, which placed them very late in their timing band for a daily cycle low. While the Miners formed a swing low last week, they were not able to confirm the new daily cycle — until today.

The Miners delivered bullish follow through on Monday by closing above both the declining trend line and the 10 day MA to confirm day 46 as the daily cycle low. The Miners also closed back above the upper daily cycle band to renew its daily uptrend.

However we need to watch RSI. RSI pattern prior to peaking on day 42 was typical of the advancing phase of the intermediate cycle, with embedded periods of being overbought and quick reversals from oversold. But the pattern is changing. Notice how RSI reversed quickly form overbought on day 42 and embedded as it printed the day 46 DCL. If RSI reverses quickly again when it reaches overbought that would signal that the Miners have entered their declining phase for the intermediate cycle.

Fed To The Rescue

Stocks formed a swing low on Tuesday.

We discussed on Monday why I felt that the Fed could not let the markets develop any bearish follow through to Thursdays’ huge drop. Stocks forming a swing low on Tuesday signals that the Fed has managed to abort (for now) an intermediate cycle decline by forcing stocks to print, what I believe is, an early daily cycle low.

While it is debatable that 21 days is too early for a DCL and should only be a half cycle low. What is not debatable is the quick bullish reversal on RSI that is characteristic of a bullish pattern that occurs during the advancing phase of an intermediate cycle. Which aligns with stocks currently being in a daily uptrend. And since a swing low has formed above the lower daily cycle band, stocks remain in their daily uptrend and trigger a cycle band buy signal.

Correction

Stocks broke lower on Monday.

Monday was day 36 for the daily equity cycle, placing stocks in their timing band for a daily cycle low. The peak on day 33 assures us of a right translated daily cycle formation, giving us the expectation for stocks to print a higher daily cycle low. So if stocks form a daily swing low, it will have good odds of marking the daily cycle low.

Two things that I am paying attention to is the RSI and the TSI. The RSI is oversold. When stocks are in the advancing stage of their intermediate cycle then RSI does not stay oversold for long, as witnessed in early December. So a quick rebound of the RSI will indicate a continuation of the intermediate cycle advance. But the bearish TSI divergence is a concern. If RSI does not recover quickly that will point to stocks beginning their intermediate cycle decline. Which is something that I plan to discuss in the Mid-Week Update.