The Bear Question

…is a fair question.

I have made this suggestion before that a Weekly E-59 HL2 (in Violet) is a good place to look for a market type switch, especially after 3 clean closes on the new side. Yes, things can be this simple…

…but not always are this clean. A major break up and an immediate RSI2 embedding without any gap fill attemt would be hard to miss clues. Remember those 3 horizontal lines.

Time forward. Other times the clues may still work, but the start may turn out to be sluggish and frustrating. The first conclusion that I would like to draw based on the next image is that 3 weeks of closes on the other side is merely a confirmation that the previous market has ended – a gear shift to neutral.

The second thing is the proof of the pudding. Yes, there are basically no closes above the line afterwards, but what is more important is that the first pullback’s high does not get violated. Now, pay attention to the RSI2. The one with the vertical line and circle is the closest approach of the overbought (87.5). I would call that the beginning of the bear market – gear shift. Even then, the next week makes a higher high and fails it with an engulf, but that rebound swing high remains untouched. It took 19 weeks after crossing the line to call the new market in this example.

The next example is an early bird special.

Let’s call the first E-59 violation a question mark. With the higher high the next week this could be deemed neutral. Pay attention to the drop that followed and was unable to go oversold (12.5) no matter how it tried. The confirmation of the new market was therefore an overbought reading with 3 closes above the E-59, and the best entry was below the low of candle 3, as close as you could get a fill to the E-59.

The incubation on the next one was 5-6 weeks with the neutral confirmation being in place first.

What about now? Back at the big debate zone again. Market is neutral after the 3 red count.

There was an embedding attempt on the upside that failed on the 4th week. There was 120 pips tagged on for a fake out before the engulfing. My preferred outcome here would be the mirror image to leave question for the next market type hanging for longer.

Talk about gulfing…