Cycle Trading: Analyzing the Evidence for a Daily Cycle Low
|I received a number of emails asking if Friday was a daily cycle low.
Let's look at the evidence.
Generally speaking stocks need to be in their timing band for a DCL and also close below the 10 day MA for a DCL to print.
The daily equity cycle peaked on day 22 and has drifted lower, printing its lowest point on Friday. That was day 30 which places stocks in the early part of its timing band for a daily cycle low. Stocks also closed below the 10 day MA on Friday as well.
So, some of the evidence is beginning to point to Friday hosting the DCL.
However, some other indicators are signaling that the daily cycle low has yet to form. The first of which is the 10 day MA. While stocks did close below the 10 day MA, we also usually see the 10 day MA turn lower prior to a DCL. Which has not yet occurred.
There are usually 2 bearish crossovers that also form prior to printing the DCL: a bearish 30 line crossover on RSI 05 along with a TSI bearish zero line crossover.
In the example above, stocks were in a stretched daily cycle where price did close below the 10 day MA twice before printing the daily cycle low on day 60. But both times that stocks closed below the 10 day MA, RSI did not close below the 30 line, the TSI did not deliver a bearish zero line crossover and the 10 day MA did not turn lower -- so consequently stocks did not print a DCL in either case.
And since those same criteria have not been satisfied here, this additional evidence is indicating that the DCL has yet to form.
One last signal indicating that the daily cycle low has yet to form was delivered by the Selling on Strength number that printed on Tuesday.
Stocks printed a 777 million Selling on Strength on Tuesday. This is a large number that usually foreshadows the printing of a daily cycle low. I have to say that it would be very rare to see this type of number on day 1 of a new daily cycle.
So after shifting through the evidence, the odds are that the daily cycle low has yet to form.
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