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June 25, 2012


If you look the 34,19,10, and momentum cycles right now, you'd have to be saying they look very toppy and ready to retreat. You'd be right, and over the next few sessions they should begin to retreat, joining the long and short term cycles in their decline phase.

Near term, the combined strength of those medium/short term cycles should overpower the rising intermediate and 64 day cycles. An important factor that helps to explain that is the rising ATR line. Rising volatility in a rising intermediate trend is not a bullish sign. Volatility is supposed decrease as institutional buyers continue to buy on each successive and smaller dip. That's not what's happening.

Instead, we are seeing more selling into market strength, or heavier profit taking at momentum cycle peaks. That's a bigger sign of growing trader fear, and is the cause of more intra-day volatility. In essence, the rising ATR line tells us this intermediate trend is becoming less sustainable.

Last week we were stopped out of long positions and should be in cash right now. I would not consider another long position unless (for some reason) markets were able to break back above their 5 and 50 DMA's ( I don't see that happening with shorter cycles on the decline).

INVERSE ETF's (DXD, QID, SDS) can be traded on a break above their remaining resistive averages 21,30 DMA's (target shooting that entry on that break). Look for continued volatility on near term bearishness, and if INVERSE ETF's are played, use stops underneath their rising 5 day moving average.



Top panel: shortest cycle imposed over Dow's price (light blue), Donchian Channel (also known as Price Channel), and 5 day moving average (black). Middle pannel: Four most actively followed cycles - shown in first four numbers of parenthesis. The colored HORIZONTAL lines are a "prediction" for the next high/low for three of the cycles - based on the length of their cycle length(time). Lower Panel: Value Chart, which is the standard deviation from average price over past 7 days.


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