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Time Warp

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If the "Rubber Band" setup's crash pattern continues to track, then Friday will trend down steeply through the afternoon.

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Eerie similarities between this week and pre-Black Monday.



We published the above chart of June Gold last week to illustrate AvidTrader's "Rubber Band" setup. The resolution's one-week 10% drop illustrates the setup's relevance. It also illustrates why buying into this week's stock index declines might be premature.

AvidTrader's "Rubber Band" setup tries to answer the question when enough isn't just enough, but too much. Picture the Gold chart as if a rubber band is being stretched wider and wider by two hands. At some point, the rubber band is stretched to its limit. And according to our work, that point is a string of ten consecutive trending days that is interrupted by only one - and under some conditions, two - counter-trend day(s).

At that point, the rubber band either snaps back hard, or it breaks. When it snaps back, the hands rush toward each other quickly. But when the rubber band breaks, the hands quickly rush farther apart. Somewhat similar in concept to DeMark's "sequential," from different perspectives.

So, apart from letting us toot our own horn over last week's call on Gold, why mention this pattern now? No reason, just the tooting thing. Did we mention 10%? In a week? Actually, there is another reason: S&Ps just triggered the same setup. And apart from the differences (there are always differences), the current downleg bears an uncanny - if not unsettling - resemblance to price action through Friday, October 16, 1987, the last trading day before the "Black Monday" crash.



Last night we published the chart above. This morning's new low (not shown on the chart) is entirely in-line with the setup's resolution that breaks sharply lower. The new low is also in-line with the resolution that snaps back. The difference is in whether today's close were to extend in the decline's direction, or reverse it. In Gold's case, the setup's last day reversed its trend, trading to new highs overnight and then ending the regular session back in negative territory.

If the "Rubber Band" setup's crash pattern continues to track, then Friday will trend down steeply through the afternoon. Otherwise, a close above this morning's low would trigger the setup's snap pattern. Either way, "expect a very interesting week ahead" (that's what we said last week about Gold).
No positions in stocks mentioned.
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