Anatomy Of The Stock Cycle

Ordinarily, the stock market has the easiest cycles to map.  After a crazy first few months of the year, stocks have settled back into normal looking cycles.  This is why we were able to enter near the bottom, exit near the top and re-enter again on day two of this new daily cycle.

The chart below is the current chart of the S&P 500.  The shaded area was the previous daily cycle.   I made the first buy recommendation on March 24 which was actually day 1.  This won't happen very often.  It will usually be day 2 or 3 when I recommend buying due to a swing low.  On April 21 we got our half cycle low.  Most daily cycles will have a HCL.  We are able to connect a trend line with the lowest most point of the previous cycle to construct the daily cycle trend line.  The daily cycle trend line is important as it marks the moment stocks begin their decline into a daily cycle low.  It was at this moment when we exited our stocks.  We were in and out once but we captured 95% of the first cycle.  

We bought again on day 2 of the second daily cycle on May 17.  We are now in the advancing stage of a daily cycle and today is day 4.  

My expectation will be this.  Just as during the previous cycle stocks will have a half cycle low.  It most likely won't last but a day or two so timing this exit and re-entry is probably futile.  I am going to wait for the HCL to occur and recommend we add to our positions at that moment.  We will then raise our stops up to where the bottom of the HCL and ride up the second half cycle.  We will be raising our stops on this cycle almost daily.  When we are a week away from timing band for the next daily cycle low we will just exit near the peak.

If we agressively raise our stops now, we will get taken out of the trade and will have to decide when and how to re-enter.  The odds of hitting this right are just too slim to risk in my opinion.  I am willing to hold out for a few days of pain at a HCL than have to deal with the emotional stress of trying to figure out the right moment to re-enter.  

The chart above is just for an illustration to demonstrate the trajectory and not a projection.  Below is a realistic projection for this cycle.  There is a gap to fill around the 3330 area.  Once we break above the 200 day moving average, I don't see anything that could serve as resistance until we get to that gap.

If the S&P rallies over 800 points, I think we will see the NASDAQ at all time highs, topping around 3200 to 3300.

So my plan is this.  I don't want to muff this opportunity up by trying to jump in and out along the way.  I am going to use the dips as buying opportunities and reasonable places to raise stops along the way.