V.1:1 (19-19): Handling Market Reactions by JOHN E. ROSENSTOCK

Handling Market Reactions by JOHN E. ROSENSTOCK

All markets exhibiting prolonged price trends invariably have reactions against the trend. These reactions can be of short or long duration and can retrace small or large portions of the preceding swing. They can be very sharp reversals or have periods of congestion prior to the retracement. The question is: How are these reactions anticipated, measured, and taken advantage of? One very excellent method used in my computer analysis of market reactions is the momentum concept. This theory is based on market velocity and can be aptly described as "the steam in the boiler" method. The most difficult part of working with reactions is determining when they are over. Momentum is ideal for this purpose. The market to be measured must first be tuned to is dominant cycle. Measuring from tops to tops or bottoms to bottoms and halving this figure will produce a workable factor. For example, say our cycle is 20 days. The price today is compared with the price 20 days ago. If it is higher than 20 days ago, it is plotted above a base line. If lower, it is plotted below the base line. Using silver as an example, if today's close is 10 cents higher than 20 days ago, a point is put 10 points over the base line. The next day may be only 5 cents higher than 20 days ago, so a point is put 5 cents over the base line. This continues for each consecutive day, plotting points either above or below the base line. This chart can yield two very important bits of information: 1) When the reaction is over; and 2) When the main trend will resume.