Friday, August 1, 2014

The chart shows how Mr. Market set up the haymaker: a double top followed by a swoon that left bears scrambling for cover on Tuesday.  Stocks opened that day on a nasty gap that would not merely have fooled bulls, but panicked shorts as well.  A weak rally followed, then a sharp pullback into day's end.  You'd think bears might have sat back and enjoyed it, but no. The next day, they allowed themselves to get sucker-punched with yet another short-squeeze on the opening bar. By day three, bulls and bears had both figured out where things were heade and pulled their bids.  Expect the downtrend to exhaust itself on very low volume today, setting up a new short-squeeze that could start the process all over again.

The 1274.20 target shown was first signaled on July 18 when December Gold dipped beneath the green line (aka point 'x'). It may be too obvious and well-advertised to work with perfect precision, but it's unlikely that the futures will be able to avoid a tradable upturn from somewhere very near it.  Its value has mainly been in keeping us on the right side of July's tortuous downtrend despite a couple of $25 head-fake rallies.

Yesterday was the first time in recent memory that many of those who 'bought the dip' got creamed.  Traders should keep in mind that every bearish target implies a potentially profitable short with-the-trend as well as a bottom-fishing opportunity at the target.  In a bear market, the best place to initate the short will often be on the retracement rally to the midpoint pivot rather than at the conventional point 'x' of the downtrend.  This will hold true for the longer time frames as well.  Assuming we've entered a bear market, corrective rallies will tend to fail at their midpoint pivots, and ABCD downtrends to reach or exceed their 'D' targets.  My experience with the dot-com boom-and-crash is that heightened volatility makes swing highs and lows even more predictable than wafting rallies or sideways chop. Concerning this vehicle, most immediately, the night shift has pushed the futures to the exact midpoint resistance (p) of  the minor abc uptrend shown. If  p holds, this would be as expected. As I've implied above, bear markets tend to produce corrective rallies that get no further than p. Night owls may not get much movement in off-hours trading, but the moves themselves will be more predictable and reliable than what you're used to.