Identifying a Change in Cycle

According to Hooper and Zalewski in their book Covered Calls and LEAPS a Wealth Option, one can identify a change in cycle by identifying when the following two events occur, indicating a change from a declining cycle to a rising cycle.

1. A higher bottom or bottoms, which may occur within the declining price cycle.
2. A break through of the top line of the declining price cycle.

According to the authors, "the first buy point of a new price cycle is literally the first point in a new cycle at which the buying low rule is satisfied" and "the first buy point of a new cycle is always preceded by a minimum of tow tops and a minimum of one bottom." The second top is higher than the first.

This is merely the first spot an investor can enter the new LEAPs position. You can also enter the position after the trend has been well established but this serves as an indicator at a minimum of when the first buy point occurs.