Despite forming a bullish reversal on Monday followed by a swing low on Tuesday, stocks are still being contained by the 4800 resistance level.
A bullish break above resistance could send stocks to 4900 or even 5000. But as we discussed with stocks being overdue for their yearly cycle decline, rejection here may set the ‘dominos’ in motion to lead to the intermediate and yearly cycle declines.
After consolidating below resistance for 2 months, stocks broke out convincingly above the resistance level on Monday. Stocks became stretched above the 10 day MA on Monday and started to consolidate, which will help to allow the 10 day MA catch up to price. However, stocks formed a swing high on Friday. If stocks deliver bearish follow through and close below the resistance level that will signal the daily cycle decline. And may set the ‘dominos’ in motion to lead to the intermediate and yearly cycle declines. I discuss this in the Weekend Report.
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Stocks became stretched above the 10 day MA on Monday. They have since been consolidating which is helping to allow the 10 day MA catch up to price.
While stocks are at all-time highs, there are bearish divergences developing on the oscillators, which often herald a cycle decline. If stocks form a swing high and close back below the breakout level that will signal the daily cycle decline. And if this breakout fails I think that will also trigger the intermediate and yearly cycle declines, which I plan to further discuss in the Weekend Report.
The status of the daily cycle is not clear.While the dollar formed a swing high and closed below the 10 day MA on day 22, it did not do ‘enough’ for us to label day 22 as the DCL.
However, the dollar is behaving as if day 22 was the DCL. The dollar has been trading in a narrow range for the past 3 week plus weeks. The dollar closed below the 10 day MA on Wednesday then backtested it on Thursday. A bearish break out of consolidation will signal the daily cycle decline. What is clear is that the dollar is in a daily uptrend and will remain so unless it closes below the lower daily cycle band.
Stocks rallied to close above the 4715 resistance level on Thursday.
Closing above the 4715 resistance level was our signal to add to positions. Stops can now be raised to the rising 10 day MA. RSI 05 formed a quick bullish reversal on Monday. We are now watching to see if RSI 05 will embed in overbought to indicate a continuation of the intermediate cycle advance. A quick bearish reversal will be a signal that stocks are shifting into the declining phase of their intermediate cycle.
Stocks closed below the 50 day MA on Monday, turning the 10 day MA lower, to signal the daily cycle decline. That was negated on Tuesday.
Stocks formed a swing low on Tuesday. Stocks are currently in a daily uptrend. Forming a swing low above the lower daily cycle band indicates a continuation of the daily uptrend and triggers a cycle band buy signal, using Monday’s low as the stop. Positions can be added to with a close above the 4715 resistance level.
After being rejected by resistance at the 4715 level, stocks formed a swing high and closed below the 10 day MA on Friday. They delivered bearish follow through on Monday by closing below the 50 day MA. Stocks also started to turn the 10 day MA lower on Monday. The peak on day 9 sets stocks up for left translated daily cycle formation. A close below the previous DCL of 4495.12 will form a failed daily cycle signaling that the intermediate cycle decline has begun and quite likely — the yearly cycle decline as well. Which I plan to discuss further in the Mid-Week Update.
While the dollar formed a swing high and closed below the 10 day MA on day 22, it did not do ‘enough’ for us to label day 22 as the DCL. It has been 3 weeks and the dollar has been crawling along the 10 day MA, no doubt due to the heavy manipulation in the currency markets. So we may need to turn to the weekly chart for more clarity. (The weekly chart can be found in The Weekend Report) What is clear is that the dollar is in a daily uptrend and will remain so unless it closes below the lower daily cycle band.
It is concerning that since forming its DCL, stocks have been unable to deliver any bullish follow through.
We need to keep in mind that stocks are on month 21 for the yearly cycle. Which means that stocks are way overdue for a yearly cycle decline. Stocks formed a swing high on Friday. A close below the 50 day MA will trigger our stop. Then a close below the lower daily cycle band will end the daily uptrend and begin a daily downtrend, potentially beginning the yearly cycle decline.
On Monday we discussed that we were waiting on a close above the 4720 resistance level to add to positions. We are still waiting.
Stocks had gapped up over the 10 day MA last week during the initial surge out of its DCL. Stocks retraced a bit on Tuesday, backfilling that gap.
Stocks are currently in a daily uptrend. If stocks form a swing low above the lower daily cycle band then they will remain in their daily uptrend and trigger a cycle band buy signal. A close above 4660.47 will form a daily swing low. The plan remains the same. Add on a close above resistance and use a close below the rising 50 day MA as the stop.
We are waiting on a close above the 4720 resistance level to add to positions.
However, stocks are still being contained by the resistance at the 4720 level. From Mid -Ocitober to early November stocks were in a strong daily uptrend that was in part characterized by RSI embedding in overbought. Since rallying out of the day 43 DCL, RSI has not been able to embed again in overbought. Stocks were turned back by the 4720 resistance level on Monday. If stocks deliver any bearish follow through then we will need to honor the stop at the rising 50 ay MA.