NEW YORK (TheGoldAndOilGuy.com) -- While trend lines are a great tool for identifying a weakening movement and reversals in the market, I don't put a lot of my analysis weighting on them.
Most of my timing and trading is based around what I call inner-market analysis (market stages, cycles, momentum and sentiment). Using these data, we can diagnose the overall health of the market. Knowing the strength of the market, we can then forecast short-term trend reversals with a high degree of accuracy.
In this report, I keep things clean and simple by using just trend lines. During the last three weeks, we have seen the price of stocks pull back. And because 2013 was such a strong year for stocks, most participants are expecting a sharp market correction to take place anytime now.
So with the recent price correction, fear is starting to enter the market, and money is rotating out of stocks and into the risk-off assets like gold and bonds.
Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors toward the safety trades, or risk-off: high-quality bonds and precious metals. As more money goes from risk-on to risk-off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds, compared with the volatility of stocks, will result in these risk plays moving in opposite directions.
Let's take a look at the chart below for a visual of what seems to be unfolding.