Traders Toolbox: Bottoming Behavior - Revisited…
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“Markets which have been in a persistent downtrend often exhibit a common pattern as the end of the decline is approached. The pattern is to post a sharp rally followed by one final decline to new lows.
Sharp rallies formed recently in both pork bellies and gold. Following the rallies, both markets plummeted to new lows. However, once new lows were made, the declines stalled. The failure to sustain the break on the move to new lows indicated the selling was effectively exhausted and potential bottoms had formed. A similar pattern marked the low in soybeans prior to the 1983 bull market…”
Revisit the Trader’s Toolbox Post: “Bottoming Behavior” here.
11500 or better,I am an optimist!
Please forgive and correct me if I’m wrong, but this example was confusing and quite ambiguous, at least on the gold. The numbers shown were from some past time period, yet the commentary was indicates that it was from ‘recent’ trading activity. This cannot be, from what I am seeing, and there are no dates posted. If it were to simply create an example, it should have at least described the time period used to derive the illustrated trading pattern, along with less ambiguous comments.
Mark,
You are right on the money. The point of the lesson was to share classic patterns that continue to occur in the markets. The price of gold is around the $1,030 area and not what was shown in the example from another time.
Thanks for your feedback.
All the best,
Adam
Please say what you mean…are you saying the recent downturn may fortell the start of a sharp decline to a low below 666?
Lynda,
Not sure where this comment belongs. Can you please specify in more detail what you are referring to.
Thanks,
Adam
Lynda was referring to the S&P in March 2009. Will the market go back down to these lows and lower? I think your example is far from that, as it is currently proceeded by a strong uptrend. Your example is specific to when stocks are making lower lows and lower highs (downward channel) and then you see this little pop up, back down and then back up again. What I want to know is what other indicators must you look at other than the graphic that indicates you could see downward pressure subside? MACD? RSI? Volume (what is the average you’d use), etc.? It can’t just be on this simple “pattern” can it?
Tony,
Thanks for your feedback.
One of my favorite indicators was developed by a friend of mine who I went on a speaking tour with in Asia. His name is Gerald Apell and his indicator is the MACD.
Follow that indicator and you can’t go too far wrong.
All the best,
Adam