TL;DR

The pullback we all knew we needed has started. This is the daily cycle decline. Now we need to watch and see if the market can hold a higher low which is generally above the 4100 area.

Overview

The third week of August ended red as we reversed later in the week after making a new high on the weekly chart. We are 3 days into the start of the daily cycle decline so how this DCL forms will tell us a lot about what to expect on higher time frames.

The Daily Cycle

Friday was day 43 of the current daily cycle and we now know day 40 (8/16/22) was our DCH. So this is the third day of the declining phase of the daily cycle. This is relatively late for a daily cycle so we could see a relatively short decline and bounce to begin a new daily cycle.

Notice there is an unfilled gap identified on the chart below. This would take us down to the 4140 zone. Given the tendency of price to fill gaps that seems like a possible reversal zone where we might expect buyers to step in and we get a swing low. Of course, we will have to gauge price action in real time as always. Either way, I’m ready for the scenario where we get a DCL next week and continue to push higher and how the weekly chart shapes up will tell us a lot.

• Current Count: Day 43

• Previous Daily Cycle Low: Day 54 (5/12/22)

• Current DCH: Day 40

The Weekly Cycle

This past week was week 9 so we will be starting week 10 of this weekly cycle on Monday. Keep in mind, this may also be the first weekly cycle of a new long term cycle (more on that below). What we are watching for here are any signs that we may get a left translated weekly cycle which would start with a weekly swing high.

The action this week has increased the chances of that weekly swing high next week but it’s still at the higher end of the range so we would need to see significant downside momentum to break the weekly chart structure and strongly indicate we are getting a left translated weekly cycle. We need to hold the low from the week of 8/8 at around 4112 which is labeled on the chart below. If we get below this level that would create the chance for a downtrend to begin on the weekly chart which would be a signal of the start of the weekly cycle decline.

At this point we would expect a weekly cycle over 25 weeks long given that last 2 cycles were less than 20 weeks long. That means if it’s right translated the high would happen after week 13 and of course it could be extremely right translated and not have a high until much later. These are the different scenarios at play as we watch how the weekly cycle continues to develop.

• Current Week: 9

• Previous Intermediate/Weekly Cycle Low: Week 16 (6/17/22)

• Current ICH: Not Printed Yet (NPY)

The Long Term (3 Year) Cycle

As mentioned last week, we have a bullish monthly swing low in place making June a possible long-term cycle low. However, as this daily cycle decline unfolds, it is unable to hold above key levels, that would turn the monthly candle red and put the monthly swing low in jeopardy if there is more bearish follow through. This is the key to understanding price action. The lower time frames impact the higher time frames if there is follow through in the direction of the move. So if the daily cycle decline is bearish, that may cause structural weakness on the weekly chart which will eventually cause the monthly chart to breakdown.

The key level for the month chart is 4112 which was the opening price. That means below that level, the monthly chart goes red and we begin to threaten making new lows. Also notice that 4112 level also happens to be the low from the week of 8/8 as mentioned above. This is not a coincidence. You will find key levels have a confluence to them as they correspond to opening, closing, high, and low prices (OHLC). This is one of the hidden arts of price action when you understand how to identify levels based on structure and correlate them with other important pieces of context.

The key here is if we can hold that monthly swing low or lose it and recapture (bullish false breakdown), that will be our signal that we did get a long-term cycle low on month 27 (June) and we are early in a new long-term cycle which means we are in the advancing phase by definition. The next hurdle would be figuring out if this long-term cycle will be right or left translated so that’s something we will be watching for as well

Conclusion

How this daily cycle decline unfolds is all that matter at this point as it will have implications on the weekly and monthly charts which will gives us clues about the shape of this weekly cycle and understanding exactly where we are in the long- term cycle.