THE 360-DAY CYCLE AND MEAN REVERSION FORECASTS GOLD ABOVE $3100
Date Published: September 28, 2024
Author: Patrick MonteDeOca
Market Analysis Summary
1. 360-Day Trend Momentum and Price Momentum with Probability Models
- Current Price: 2668 (Gold Futures Contract)
Trend Momentum (9 SMA at 2375)
- Bullish Trend Confirmation:
- The current price of 2668 is above the 9-day SMA of 2375, indicating a bullish trend momentum.
- Probability Assessment:
- Staying Bullish Above 2375: The probability that the price continues an upward trend while remaining above 2375 is relatively high, estimated at around 75-80%. This implies a strong sentiment, and traders should consider staying long.
- Turning Neutral Below 2375: If the price falls below 2375, there is an increased probability (around 50-60%) that the bullish trend will be negated, potentially leading to a consolidation or a shift to neutral.
Price Momentum (VC PMI at 2447)
- Bullish Price Momentum:
- The closing price above the VC PMI Yearly Price Momentum Indicator of, 2447 supports a bullish price momentum.
- Probability Assessment:
- Above 2447: With the price staying above 2447, the probability of maintaining bullish momentum is estimated at 70-75%, suggesting that the trend will likely continue upward.
- Below 2447: A close below 2447 would reduce the probability of further bullish momentum, turning the outlook to neutral and indicating caution for traders.
2. Key Price Levels and Mean Reversion Analysis
Resistance Levels (Sell Zones for Long Positions)
- Sell 1 (2929) and Sell 2 (3190):
- These levels represent resistance areas where the price has a high probability of reversing or consolidating.
- Probability and Mean Reversion:
- Probability of Reversal: When the price reaches the 2929-3190 range, the likelihood of a mean reversion back to lower levels is estimated at 65-70%. These levels act as major resistance points, which are likely to attract selling pressure.
- Profit-Taking Strategy: Traders should take profits on long positions as the market approaches these levels. Given the resistance, there is a high chance that price momentum will weaken, creating a favorable condition for mean reversion.
Support Levels (Buy Zones for Long Positions)
- Buy 1 (2186) and Buy 2 (1704):
- These levels are significant support areas that provide opportunities for buying on corrections.
- Probability and Mean Reversion:
- Support at 2186-1704: The probability of a reversal and mean reversion from these levels is approximately 70-75%. Historically, these levels act as critical zones where buying pressure often outweighs selling, leading to price recovery.
- Entry Strategy: Traders should enter long positions on a reversal at these levels, as the market is expected to revert to its mean, moving back towards higher resistance levels like 2447 or 2929.
3. Trading Recommendations with Probability and Mean Reversion Models
Short Positions:
- Take Profits on Short Positions:
- If the market moves down to the 2186-1704 support range, traders should consider taking profits on short positions. The probability of a price reversal from these levels is high, indicating that a continuation of the short position may become increasingly risky.
- Given the strong support, the mean reversion model suggests that a reversal and subsequent upward movement are probable.
Long Positions:
- Enter Long at Support (2186-1704):
- The 2186–1704 levels serve as attractive entry points for long positions, with a high probability of mean reversion. Traders should look for reversal signals in this range to enter long trades.
- This strategy takes advantage of the market’s tendency to revert to the mean, especially after reaching an oversold condition at key support levels.
- Stop-Close-Only Orders:
- Use the 1704 level as a Stop Close Only and Good Till Cancelled (GTC) order. If the market closes below this level, it would indicate a break of major support and a possible shift to a bearish trend.
- Probability of Breakdown: A close below 1704 could signal a change in sentiment, with a 60-65% probability that the market may continue to move lower.
- Take Profits on Long Positions:
- As the market reaches the 2929-3190 range, traders should consider taking profits. The mean reversion model indicates a high likelihood of price facing resistance and pulling back from these levels, making it a favorable zone to lock in gains.
4. Summary and Trading Plan for the 360-Day Cycle
- Bullish Trend and Price Momentum:
- Current Trend: Bullish above the 9-day SMA of 2375 and the VC PMI of 2447.
- Probability of Continuing Uptrend: Estimated at 70-80% as long as the market stays above these key levels.
- Profit-Taking and Entry Strategies:
- Take Profits at Resistance: Use the 2929–3190 levels as profit targets for long positions, as the probability of mean reversion is high.
- Enter Long on Corrections: Look for buying opportunities at 2186-1704 with a high probability of mean reversion to higher levels.
- Risk Management:
- Stop-Close-Only Level: Use 1704 as a critical stop-loss level to manage risk on long positions. A close below this level would imply a shift to a bearish outlook.
- Mean Reversion-Based Reentry: After exiting at a stop, consider reentering long positions if the market shows a recovery above key support levels.
Conclusion:
Using the probability and mean reversion models alongside the VC PMI indicators allows for a strategic approach in trading gold futures during the 360-day cycle:
- Stay Long while the market remains above 2447 and 2375, with a high probability of continuing upward momentum.
- Take Profits at 2929-3190 to capitalize on the likelihood of resistance.
- Buy on Corrections at 2186-1704, where the probability of mean reversion is strong, providing an excellent opportunity to go long.
Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.