Things have a tendency to revert to an average. This is especially true for things related to sentiment. We may feel optimistic one day and sad another day, but on average we're hovering around a mean, not too far off from that of everybody else.
In financial markets, this tendency to revert to the mean can be measured and used. Prices have a predictable tendency to revert to their moving average. The 200 day moving average is in this respect, particularly strong.
When prices fall from a high level, there's usually a bounce at the 200 day moving average. An up-trend can be identified as one in which prices hover above this line, and bounce off of it whenever they decline. Conversely, a down-trend makes the opposite pattern. Prices lie below the average, and fail to break through it whenever there is a bit of optimism.
Trend reversals are typically marked by a breach of the 200 day moving average.
As things stand right now, the Dow Jones index is still well above its 200 day moving average, despite a big correction. Bitcoin is below its average, despite its recent rally, and Gold is struggling to break through its moving average from the down side.
The most likely scenario going forward is a bounce off of the 200 day moving average for both Dow Jones and Bitcoin. If gold manages to break through its moving average remains to be seen.
Eventually, I expect gold to break through its moving average, thereby continuing its bull run. I expect Dow Jones to break down through its moving average, and Bitcoin to remain in its down trend below its moving average. My guess is that all of this will be confirmed before the end of this coming summer.
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