Market State: BEAR TREND CORRECTION
GOLD has been in a BEAR TREND since the start of the year confirming a negative shift the week of FEB 11 2013 and is now in a “CORRECTIVE” rally from the JUN 24 2013 week lows.
Defined:
A market in a BEAR TREND CORRECTION has produced a positive signal against a negative trend. The market is vulnerable to the downside, however does have the potential to produce a counter trend corrective rise. The market is searching for resistance. Positive corrective action can disappear quickly so avoid leveraging up on any rally as the negative momentum will try to re-establish itself.
The key to this Market State is the technical level that identifies the “peak” of the lower move low, lower move high Structure of the underlying BEAR TREND. It is this Market Structure alignment point that will signal a resumption of the BEAR TREND or a transition into a neutral or positive trending Market State.
The Market Structure alignment for Aug’13 GOLD has been identified at 1345.0.
STRATEGY AND TACTICS
A BEAR TREND CORRECTION is a NON TREND type state. In NON TREND type states follow through is unlikely however emotional trading conditions should be expected at the technical alignment points. Use Deviation, oscillator and turning point indicators and reversal chart patterns to aid in identifying an exhaustive turn and resumption of the BEAR TREND. TREND FOLLOWING tactics such as a simple Moving Average can be incorporated to confirm a break in the current positive momentum. In a BEAR TREND CORRECTION Market State the expectation is that the positive “corrective” rally will break structure at an alignment point however until it does, the potential for a positive transition must be respected.
Market State analysis identifies the technical environment the market is currently trading in. Strategies and tactics to buy or sell should be in alignment with this theme to optimize performance. The best risk defined opportunities are to be found at Market Structure alignment price levels.
ADDITIONAL COMMENTS
Identifying the negative “turning point” is the optimal strategy in this market state, as it represents the potential beginning of a new reaction lower. Corrective states can be emotional before the positive “corrective” action exhausts and the BEAR TREND resumes. This state does have the potential to spark a “sustained” corrective rise lasting 3-5 sessions and transition the market in a neutral state or even BULL TREND reversal.
The market is Trending in one direction but is characterized by a “stop and go” trade, with sharp counter trend reactions. There is opportunity on both sides of the market with the best being in the direction of the underlying Trend bias. FADE and REVERSAL strategies are expected to be more successful over BREAKOUT strategies as the CORRECTIVE action will keep the trade “choppy”...
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