Update: Selling Half, Cycles and New Stop

I could do an entire video series on cycles and their role in market analysis. In fact, eventually, I will. For now, understand that there are ebbs and flows of buying and profit-taking in the markets that have discernable rhythms. You just witnessed one of the short-term cycles in operation. In the illustration above, the grey area established the target bottoming zone.

As we saw yesterday, the stars were aligned to pull us into the low, and the Head and Shoulders chart pattern further confirmed the cyclical top, with a new one marking the bottom.

Two more cyclical principles are handy. First, in the stock market, cycle lows tend to align rhythmically, while cycle peaks are all over the place. Moreover, when multiple cycles are bottoming simultaneously, the market’s pull into the low is more powerful, usually leading to a deeper correction. In the chart above, when the semi-circles at the bottom line up, representing multiple cycles, you can (and typically will) experience that more precipitous correction.

As to the why of cycles, some attribute it to the alignment of the planets. As an example, there is a 30-day cycle some attribute to the moon cycle.

My theory is a bit different. Cycles are the natural result of multiple investors operating in different time frames. Longer-term investors take profits on a different time frame than swing traders or even day traders. The business and debt cycle exert an influence. Even multi-generational attitudes, like the Fourth Turning I previously discussed in these pages, have their impact. That is all you need to know for now.

So we have a nice follow-through from yesterday’s buy signal. The sharp, reversing Head and Shoulders pattern I showed you this morning is taking nicely, projecting a move at least up to the old highs: