Whether or not this is a correction within a bull market or the beginning of a bear market, if you are a swing trader like myself, it does not really matter. For me, when the market is below the downtrend line (in my P&F world, this is the “bearish resistance line”), you basically trade the counter trends (upward very short term cycles) and you maintain a base short position.
Today, once again, the market respected level 15,300 which it needed to break out off to announce the end of this downtrend by reversing into a column of “O” back to 15,100. The following chart illustrates where we currently are:
TSX Composite Index chart
-1- The market is trading quite close to the bearish resistance line which is an indication that this may be a cyclical bear of relatively short duration (a structural bear would be a lot longer).
-2- The level to break out of is now 15,200 which is just a 150 points reversal from now. That can happen in a day! But beware of a “bull trap” like the one we had in June. That is why I use various other measures to confirm such an important reversal.
-3- Reversal Signals: Should the market reverse to 15,250 any time in the future, I would look first at a channel support +2 signal (white “O” in a blue background at 14850) then I would like to see a double top breakout at 15,300 followed by a channel resistance (white “X” in a blue background at 15,400) breakout providing me with my final +3 Buy signal.
Typically I enter market reversals into 1/3,1/3,1/3 associated with my +1,+2,+3 entry signals. To each his own.
We will see if and when this happens…