As the Investor Cycle march moves into week 30, the advanced age of this Cycle almost guarantees that the end is near. This Daily Cycle Low served the purpose of stretching out the lower Bollinger Bands in preparation for what should be a much larger move lower in the coming months. Although it’s impossible to rule out one last surge to all-time highs, this Daily Cycle will need to top pretty early and begin to make the long and fast decline towards an ICL. On the below chart we see how stretched above the 50dma the equity markets have traded for the past 7 months. But ICL’s are all about resetting the Cycle and reversing all of that speculative sentiment that has developed by the top of the Cycle. They are a pendulum move back towards the other extreme of the Cycle. That eventual ICL should end with a Cycle that is stretched well below the 50dma in percentage terms, essentially a move to the other (green line) extreme on the below chart.
It’s only when you broaden the view out to a weekly chart (below) do you appreciate just how small this DCL was in relation to the entire Investor Cycle rally. An impressive weekly hammer candle clearly marks the DCL, but after 30 weeks the drums calling for an ICL event grow louder with each passing week. The Investor Cycle needs much deeper lows to reset; even strong bull markets require these extremes to fuel the next wave higher. So the question is just how far this brand new 5th Daily Cycle will go before it tops and turns lower.
I’ve been asked by a few members why we couldn’t have yet another powerful Daily Cycle before rolling over. It’s a fair question; I did after all expect the last Daily Cycle to top early and be Left Translated. My canned answer is to say anything is possible, and that’s just an acknowledgment that markets can behave irrationally. No system is perfect or above the markets, the minute we start believing so we will find ourselves quickly in trouble.
Probabilistically though, the odds really don’t support another rally. Another Right Translated Daily Cycle here means we will need yet another declining LT Cycle to follow to complete the move into an ICL. That’s at least another 16 weeks on top of the current 30 weeks, making this the longest recorded Investor Cycle of the past 20 years. I just don’t see it, the odds on favorite here is for a LT Daily Cycle.