Using the mcm-CCI on RSI Cycles part 1

The mcm-CCI addition to the RSI Cycles turned an already useful tool into something so powerful that it quickly became my main reference for intra-day trading. I have seen it signal intra-day bottoms and tops, including the intermediate term bottom from the 20th of January. I am sure lots of people were reluctant to buy that bottom, myself included. But this tool proved its worth once more and proved my reluctance wrong.

Before going into examples to point out how the tool is working, please read the previous articles published on this subject for basic info on cycle behavior, RSI cycles and the mcm-CCI:

Now that the basics have been covered, we will focus in this article on one of my favorite ways to use mcm-CCI: anticipating the change of intra-day trends. There are 2 ways in which mcm-CCI on RSI cycles is doing that:
1. mcm-CCI is getting close to an extreme value: either close to +300 or close to -400.
2. a divergence between mcm-CCI and market price is occurring (eg: price is making lower lows, but mcm-CCI is making higher lows).
Here are several examples, with explanations attached.
1. mcm-CCI extreme value

RSI Cycles with mcm-CCI

mcm-CCI 1st example

At point 1, mcm-CCI was getting close to +300. At the same time, the RSI bars were showing an overbought condition (red bars). Shortly after the high, the directionality tool (white lines) tripped over and headed lower. At point 2 the previous impulse up of the RSI cycles was reversed, as the price broke below a support level (the bullish retrace, BR, cyan line). The mcm-CCI confirmed the move lower, by moving in the same direction. At point 3, the mcm-CCI broke below the 0 line, confirming the bearish character of the market. Afterwards the mcm-CCI didn't start to diverge from price and the impulse down unwinded in a near perfect faction, by moving side-ways and getting a 1st, 2nd and a 3rd END.

2. mcm-CCI divergence & test of 0

mcm-CCI 2nd example

mcm-CCI 2nd example

At point 1 and 2, we can see a slight divergence between market price and mcm-CCI. At point 1 both made highs, with mcm-CCI getting close to the extreme value of +300. At point 2, market price made a higher high, but the mcm-CCI did not. Although the lower high was not significantly lower, combined with the  overbought bar on RSI cycles and the resistance level and the directionality tool going to 0, there were enough clues that a change of direction is coming. Which happened and the RSI cycles started an impulse down by breaking the support (cyan line) level which followed. At point 3 we see another interesting signal from mcm-CCI. Namely - a test of 0. The RSI cycles bars were getting oversold this time and mcm-CCI tested 0 (coming from higher) and held. That is bullish and the market complied, bouncing higher. At point 4 and 5 we had yet another divergence between mcm-CCI and market price. Same scenario as before - market price makes a high, mcm-CCI makes a high (at point 4). Then at point 5 the market makes a higher high, but mcm-CCI makes a lower high, this time more significant than at points 1 and 2. RSI cycles break into a down impulse afterwards (break of the following support level - cyan line). At point 6 mcm-CCI fails the coming test of 0 and confirms more bearish implications, which quickly materialize with the market breaking down even further.

3. mcm-CCI divergence at the low on Jan 20th

mcm-CCI 3rd example

mcm-CCI 3rd example

As a last example of this 1st part, I will show what happened at the low this week. On 20th of January, right at the lows, when everyone was leaning bearish and didn't know how far the market would break, the mcm-CCI on RSI cycles signaled the turn. The same divergence showed in the above examples appeared and also in a significant manner - more than 100 points mcm-CCI divergence between the low at point 1 and the higher low at point 2, where the market made a lower low in terms of price. As soon as a support level (cyan line) appeared and held on RSI cycles, the change in trend started to take shape. At point 3 we had another great coming together of signals - overbought bars on RSI cycles, combined with a resistance level (magenta line) and mcm-CCI testing 0. That triggered a retrace, but which was held by the next support level triggered. At point 4, the RSI cycles broke into an up impulse and mcm-CCI also broke above the 0 line, confirming the more bullish tendency.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply