Buying the fear

Last week was marked by panic and fear. For dread of the imminent US recession and for the obviously more aggravating European debt crisis everything was thrown on the market and sold off worldwide what from the investors’ point of view had had a high inside value two weeks ago.

The best time for buying has always been when the cold sweat is running down the backs of millions of panic-struck investors who are pressing the sell and the short buttons. The winner formula is really quite simple: A 95% of all the stock investors and traders always lose.

They’ve got to lose in order to supply the 5% of winners with nice new cars, million profits and expensive holidays. Therefore go ahead and do what those 5% do: Think frequently (not always, of course) in the contrarian way. Look for the signs which confirm the contrarian-trade, i.e. look for that tough sell-off after “THE LOW”. Do it to catch on the wrong foot the crowds of short-sellers who entered just before that possible low trying to compensate the sell-off losses by betting on even lower sell-offs. Because, if “THE LOW” was marked already they have to cover their positions or to turn again for avoiding new losses in case of rising prices. Such a conduct often leads to a short-covering rally – to a technical counter reaction…

Fear trade number 1:

Last issue I already went intensely into the significance and the expected reactions of the market at the very important 2*1 Gann Angle in the actual monthly 3 Candle GUNNER24 Up Setup of the S&P 500. Please read here again in the analysis: click me!

What it boiled down to was that the market cannot break this important Gann Angle downwards at the first try, so we “HAVE TO” reckon with a counter reaction starting from the 2*1 Gann Angle. According to W. D. Gann it can’t break before the third or fourth test of the monthly Gann Angle on weekly basis:

The last panic week drove the market far below this 2*1 Gann Angle and below the the 2nd double arc that originally is supposed to provide strong support. During the low the S&P 500 was backed another monthly Gann Angle. A well visible counter reaction was initiated from this Gann Angle since the sell-off began at 1101.54 last Tuesday. At the moment the August candle is showing a visible long lower wick – August is spiking off. So possibly August wants to close above the 2*1 Gann Angle and the 2nd double arc.

It would take an August closing price below the 2*1 Gann Angle to produce an official GUNNER24 Sell Signal on monthly basis. Before that happens the upwards trend will be intact. As analyzed in the last issue we would have to reckon with a visible counter reaction to 1250-1260 before the definitive decision will be made whether or not the 2*1 Gann Angle will have to break.

The actual daily setup of the S&P 500 is pointing to the emergence of a significant low:

The main target is being reached! The 5th double arc was reached – it seems to resist – and it may be the trigger for a high counter reaction on daily basis! After such a sell-off we’re always allowed to apply a converse GUNNER24 Setup directly at the low. The arising initial impulse has been there for 4 days. According to the rules it should run at least 5 days. Therefore on Monday – being the 5th day – it might end above at the 4th double arc and/or at the 1*1 Gann Angle - at about 1200 (which is also the nearest visible monthly resistance – see the S&P 500 monthly setup). If the market comes back then we’ll go long within the buying area which is 1157-1135, with first target 1218 and main target 1245.

The 4th double arc is the important visible resistance. That’s confirmed by the cautious approach of the market to this 4th double arc. The last two days show some little higher daily highs which are visibly following the course of the 4th double arc upwards, keeping their respectful distance. That distance clearly demonstrates that the 4th one represents a very strong resistance which technically cannot be broken. It’s true that the market is able to follow the 4th one upwards, but should always do so maximally within or really more below the 4th.

Considerable resistance should be provided by the 1*1 Gann Angle, as well. In reality, on daily basis it can’t be broken upwards at the first or second but not before the third attempt.

All in all we mustn‘t expect that the coming 10 trading days are really going to rock. I even expect a more intense test of this 5th double arc. This 5th shall be reached again “technically resisting”. Not before that happens the direction will really be upwards, I think. Here we go! If the 5th breaks downwards, well, in that case the sell-off low should also break for that matter... According to the rules, SL for our fear trade is the sell-off low at 1101.54.

Fear trade number 2:

Gold is certainly a “relic” that demonstrates the investors’ fear. Since the US downgrading the golden metal has been popping up – unbraked:

In the monthly setup July clearly broke the 3rd double arc making the 4th double arc to be the next main target. The trigger for the last rise was the new touching of the support Gann Angle which started the price rocket repeatedly. The time was simply mature for a new ascent. With the all time highs last week the resistance Gann Angle was exceeded greatly. We’re well aware that there’s an important monthly mark lying at 1751. It’s the horizontal that is lying in the middle of the just passed square, a natural resistance which cannot really be overcome easily. Visibly to us from afar it was exceeded on daily basis. And Friday closed narrowly below the 1751.

But the fact that the 1751 were greatly exceeded and the Friday close narrow to 1751 point to the expectation that the 1751 will be broken soon. If the 1751 had been a strong resistance mark gold would have rebounded from it visibly.

This visible overstepping of the 1751 and the resistance Gann Angle show us the enormous trend force gold still has. There’ll be nothing like a “counter reaction to 1400-1200” trumpeted by the fairground barkers after each new gold all-time high. This trend hasn’t finished yet… The exceeding of some important GUNNER24 Monthly Resistances is rather showing that the lower line of the 4th double arc wants to be reached as early as in August – but maybe not before the beginning of September. But inside I’m already preparing for a last exhaustion move to 1879.

The closing price of the week before last was 1652$. Top last week was 1817$. That’s a difference of 165$. The spread from 1750$ to 1880$ are „lousy“130$. It’s a distance of two strong, fearful days. By reaching the main target we’ll cover all the monthly long positions! In case of reaching the 4th double arc in the monthly setup commodities tend to strong changes in trend.

The trigger for the possibly final exhaustion move will be a daily closing price of more than 1782:

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