Targeting the Next Cycle in a Volatile Market

Stan Harley |

Pullback into Next Trading Cycle Low

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As readers know, I was expecting the market to put in its next trading cycle high “in the vicinity of January 13.” However, after the close on Monday I was becoming a little skeptical that my scenario would play out as forecasted. Little did I know a 248 point rally in the Dow yesterday would accomplish the cycle high nonetheless; after which we saw a very sharp reversal to the downside - producing some of the most severe intraday volatility I have seen in quite some time.

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On the Dow chart above I have labeled the trading day counts between trading cycle lows in red; the numbers in black represent the sum of two successive trading cycles which I call duplex cycles. In theory, each trading cycle should span 39.8 trading days (TDs) and each duplex cycle should span 79.6 TDs. In reality, though, these cycles expand and contract over time. But “over the long haul” the time counts average right at 39.8 and 79.6 TDs respectively. 

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Given that the recent trading cycles and duplex cycles have expanded beyond their usual norm, I would expect the current trading cycle and duplex cycle to contract. A reasonable expectation would be for the next trading cycle to come in somewhere in the vicinity of 24.6 trading days and the duplex cycle to span on the order of 64.4 trading days. 64.4 TDs from the October 15 low would carry into January 19 – a week from today – which is about where I expect the next trading cycle low to occur. I don’t look for a major drubbing, however, I do expect the markets will remain under modest pressure for the coming week. My plan for now is to ride out this pending weakness with the intention of adding to existing longs as the consolidation unfolds.

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Each month, Stan Harley publishes The Harley Market Letter, a newsletter that provides advanced technical analysis of stocks, bonds, and precious metals. This is the latest update to the Harley Market Letter for January. Want to learn more from acclaimed market analyst Stan Harley? Visit his site and subscribe to the full Harley Market Letter. 

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