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“Markets which have been in a persistent downtrend often exhibit a common pattern as the end of the decline is approached. The pattern is to post a sharp rally followed by one final decline to new lows.

Sharp rallies formed recently in both pork bellies and gold. Following the rallies, both markets plummeted to new lows. However, once new lows were made, the declines stalled. The failure to sustain the break on the move to new lows indicated the selling was effectively exhausted and potential bottoms had formed. A similar pattern marked the low in soybeans prior to the 1983 bull market…”

Revisit the Trader’s Toolbox Post: “Bottoming Behavior” here.

Last 5 posts by Trading School

• Has the Dollar stopped going down? - November 20th, 2009
• Update on the crude oil market … New Video - November 20th, 2009
• Is the S&P about to fall out of bed or is it headed higher? - November 19th, 2009
• DOW and NASDAQ: New Video - November 19th, 2009
• Gold Update: New Video - November 18th, 2009