SAMT Blog
2 clear bearish market correction signs you ignored
06. August 2024, by Patrick Pfister
Technical Analysis
Monday's drop in the market came to the surprise of many. However, the correction already started 3 weeks earlier and there were a lot of signs indicating it all the time. It's a strong sell-off and part of a longer correctional move. Don't forget, the markets have been rising and rising in the last few month.
Look at this example of beautiful "bearish bat" harmonic patterns ahead of the market sell-off signaling downside potential correctly:
Those are not so easy to spot though, you need a software to draw them in real time.
There are much easier ways of spotting reliable market corrections, such as divergences in the RSI indicator.
The S&P500 had a huge bearish divergence which was confirmed on July 19th already.
Remember: the higher the timeframe, the stronger the divergence, the bigger the correction to follow.
Such strong divergences are rare, but divergences in general happen quite often. You can spot another one just in mid-July 2023 as well, follow by a market correction all the way into October 2023.
For timing, I prefer the MACD-V indicator created by Alex Spiroglou. This indicator signaled a sell on July 17th already, on an extreme level of around 150. Such extreme signals should always be investigated for further details.
Combining a strong bearish divergence in the RSI indicator with an extreme high sell signal in the MACD-V indicator gave you no choice but to keep your stops very tight or depending on your positions exit the market eventually right away.
The question is always "how far" or "how deep" the correction will be. A helpful tool for that are gaps:
The first target (gap) has been reached with the huge sell-off on Monday.
So the question I hear many times these days is "what's next"?
- The market is set for a short-term rebound to the upside. Look at the H4 timeframe, it's obvious. MACD-V is at extremely low levels once again.
- Depending on how far this rebound goes (Fibonacci retracements), it will set the strength and direction of the next move
- be aware of so called bear-traps - the market rebounds, reaches a Fibonacci-level, then turns around immediately.
- volatility remains high - which is good when you are trading into the right direction of the market move
- a mid-term (weekly timeframe basis) bearish scenario includes the next gap target at 4842
Missed these sell-signs? Learn technical analysis and invest independent of market news, fundamental data (they were bearish, but gave you no timing whatsoever).
About the author
Patrick Pfister is the President of the Swiss Association of Market Technicians (SAMT) and a seasoned technical analyst based in Zurich, Switzerland with a passion for unraveling the complexities of financial markets through data-driven insights and analytical expertise. With a solid academic background in mathematics and computer science, combined with more than 20 years of hands-on experience in the financial industry, Patrick has established himself as a trusted authority in the field of technical analysis.
Patrick embarked on a career that has seen his work with top financial institutions, where he has honed his skills in interpreting market trends, identifying patterns, and developing innovative trading strategies. His deep understanding of statistical models, quantitative analysis, and risk management has enabled him to make sound investment decisions in dynamic market environments.
Patrick is known for his meticulous attention to detail, his ability to communicate complex concepts in a clear and concise manner, and his commitment to staying at the forefront of technological advancements in the financial industry. He is a sought-after speaker at industry conferences and seminars, where he shares his knowledge and expertise with fellow professionals and aspiring analysts.
In addition to his work as a technical analyst, Patrick is also a mentor and educator, guiding the next generation of analysts and researchers in the field of financial analysis. His dedication to fostering talent and promoting excellence in the industry is a testament to his commitment to advancing the field of technical analysis.
Outside of his professional endeavors, Patrick is an avid traveler, an aviation enthusiast, and a lifelong learner who is always seeking new challenges and opportunities for personal growth. He believes in the power of continuous learning, adaptability, and perseverance as the keys to success in both the financial markets and in life.
Patrick's unwavering dedication to excellence, his innovative approach to technical analysis, predicated on multiple-timeframe turnaround patterns, and his passion for empowering others makes him a true asset to the financial industry and a respected figure in the world of technical analysis. .
Having published his research through a Wallstreet research company, you will find his posts now regularly on LinkedIn as well as on the BLOG of SAMT-org.ch.
Disclaimer: All methods, techniques, charts, analysis or results presented in this SAMT Blog are for educational purposes only. The information provided should not be construed in any way as a recommendation to buy or sell any financial instrument. You should always consult with your licensed financial advisor and tax advisor to determine the suitability of any investment to your particular financial situation. The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity. SAMT and its affiliates, directors or agents will not be held liable or responsible for your investment decisions.
SAMT nor any of its affiliates, directors or agents are a financial advisory service, nor a licensed financial advisor and do not provide financial advice whatsoever in any financial product.
Further it should not be assumed that any methods, techniques or indicators presented will be profitable or that they will not result in losses. Past results of any individual trader or trading system presented are not indicative of future returns by that trader or system, and are not indicative of future returns which may or may not be realized by you.
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