Summary
- Currencies (vs USD) – Bear Volatile reversals and trending higher.
- US Treasuries and Bonds – Bear volatile reversals and trending higher.
- US Equity Indices – Bull Quiet and trending higher with Mid and Small Caps showing the most strength. Generally they don’t sustain a trend as much as the Large Cap Indices so our trend focus is in S&P 500 and NASDAQ.
- Energy – with the exception of Natural Gas, all of the energy complex are in a Neutral regime and long/short mean reversion systems are used. Natural Gas reached Bull Volatile regime, corrected over 15% and is in the Bull Quiet regime where trend systems are used.
- Metals – Gold is in a Bull Quiet regime where trend systems are used, while Silver, Copper and Platinum are Neutral regimes where mean reversion systems are used.
- Ags– Corn Coffee Cocoa and Cattle hit bull volatile levels for potential reversals lower.
- Crypto – Bitcoin is in a Bull Quiet trend regime, and the outlook remains bullish.
Understanding Market Regimes
Market regimes create the conditions that enable specific market behaviors to unfold.
I prefer to structure my analysis to identify when the environment is ripe for trends, trend reversals, or failed trend attempts in a given market.
Many traders are quick to call a market top the moment they see a strong trend. However, just because a market has been trending higher (or lower) for an extended period doesn’t mean the trend is bound to end. Trends often persist longer and move further than most traders anticipate.
The same applies to a market stuck in a sideways, neutral phase. These stagnant conditions often frustrate participants eagerly waiting for a trend to emerge or resume. Just when excitement builds over a potential breakout, the market can surprise everyone by failing to sustain the move yet again.
Markets are constantly seeking value. By value I mean a price where both buyers and sellers agree that the current price is the price that they are happy with.
This is a balanced market.
You can step in and move size in a balanced market without affecting the price much.
A trending market is seeking value. It constantly adjusts prices higher (or lower), and as long as buyers continue to scoop up the inventory being offered at higher levels, the price will continue to rise.
In the early stages of a trend, price movements are gradual and steady, with significant back-and-forth action. During this phase, some participants are eager to sell their inventory at higher prices—whether to manage their risk as prices rise or to lock in profits. As a result, price levels tend to overlap quite a bit early on.
Overall, during the early stages of a trend, prices tend to overlap quite a bit (i.e., oscillate up and down).
As the trend gains momentum, prices tend to move higher more quickly, often leaping from one level to the next. Like an auction, the market sometimes needs to jump significantly higher to reach a point where buyers lose interest and no longer compete for the available inventory.
At this point, the trend is considered fragile because so many price levels pass by so quickly, giving us large percentage daily moves.
This is the volatile phase of a trend, where sharp reversals are more likely due to the rapid and significant price jumps.
Neutral market regime = a market that exhausts traders with repeated failed attempts to break out and establish a trend.
This is the current WTI Crude Oil chart. Crude has spent over two years in a sideways range. You can start to see the range going from wide to narrow as time passes, and participants that once looked to Crude for “the juice” become bored and depart for more exciting markets.
Each time Crude Oil shows signs of breaking out from its prolonged sideways action, traders often rush back in, fearing they’ve missed the move. However, these breakouts frequently fail, reinforcing the neutral market regime identified by the SQN indicator (yellow histogram).
In this environment, a mean reversion strategy is more effective. Last week, we shorted Crude Oil based on this approach and are targeting a 2R profit within the mean reversion range. This strategy capitalizes on the tendency of prices in a neutral regime to revert to their average levels rather than sustaining breakout momentum.
Let’s put it to work in live markets by looking at Gold right now. We are looking to enter this trade using our trend system.
Starting from the top, what regime is Gold in?
Bull Quiet – represented by the green histogram on the bottom of the chart. This indicates a market still early in its trend, where price changes more slowly, and the trend is more steady.
We use the SQN Indicator I wrote about in last week’s Sunday Setup, to identify market regimes.
Notice the blue areas in the histogram. This is Bull Volatile and indicates an area where a correction or market top is possible. Also, notice that each time it printed a blue histogram, there was indeed a market correction.
We just re-entered the Bull Quiet market regime after coming out of the neutral market regime, so the trend is early on.
We will look to get long Gold using our trend system in the coming week.
It’s important to note, however, that if the trend system does not get us into the trade, we won’t just jump in solely due to its market regime. We want to overlay our trading systems on top of the market regimes, using them when conditions coexist.
This is what we call conditional edge stacking. You can read a piece that Alex wrote about this, here.
I’ll be releasing a new video about market regimes this week. Please follow us on YouTube to watch it.
Regime / System Dashboard
- Currencies (vs USD) and Treasuries have reversed a strong downward trend after reaching the Bear Volatile regime – a requirement for a market correction or reversal, though not a confirmation. The Mexican Peso is the strongest currency after basing since August 2024 and the first currency out of a bearish regime in a rising neutral regime.
- We exited Euro long with profit
- We are long US 10-Year Treasury Notes – mean reversion system
US Equity Indices are in the Bull Quiet long only trend, with Small Caps and Mid Caps strongest out of the recent lows.
– We are long S&P 500 – trend system
- Energy (WTI, Brent and RBOB) continues in the neutral regime and will be traded using mean reversion strategies. Natural Gas on the other hand, has doubled in price since August 2025, and up nearly 200% in the past year. Natty recently put in a Bull Volatile regime, a requirement for a market correction or reversal, though not a confirmation. Since printing a Bull Volatile, it has come off some >15% from the highs, which is considered a correction. Now, back in the Bull Quiet regime In this regime, we are looking for long only trend systems for Natty.
- We are short WTI Crude Oil – mean reversion system
- We are short WTI Crude Oil – mean reversion system
- Metals. Gold is back in the Bull Quiet regime and we are looking for long only trend systems. Silver, Copper and Platinum are in the Neutral market regime and we will continue to trade them using mean reversion systems.
- We are short Copper – mean reversion system
- We are short Copper – mean reversion system
- Ags are overall showing upward trends, Corn, Coffee, Cocoa and Cattle (The 4C’s?) are all currently in Bull Volatile regime – a requirement for a market correction or reversion, though not a confirmation. Position sizing and exposure is being reduced if already long and awake for complete trend reversals. Cotton, Lumber, Wheat, Soybeans and Sugar are all in neutral regimes and will be traded using mean reversion strategies.
- We are flat all ags
- We exited Corn long in profits
- Crypto – Bitcoin market regimes are measured differently since it trades 24/7/365 in spot and perpetual futures markets. However, the CME Futures Bitcoin trades the normal CME futures hours. Due to its volatility, I measure market regimes on a 270-day basis vs. the 100-day basis for regular markets. Bitcoin is comfortably in the Bull Quiet regime, however, 15% market corrections are standard in this market, so the typical way to use market regimes with Bitcoin is different. Something I’ll go into at another time. The trend is strong, and there are no major reversal signs. Ethereum and most other cryptocurrencies are in neutral regimes and can be traded with mean reversion strategies.
- We are long Bitcoin – trend system
- We are long Ethereum futures – mean reversion system
Key Takeaway
Gold has re-entered the Bull Quiet regime, signaling the early stages of a steady upward trend, and plans are in place to go long using a trend system if conditions align (conditional edge stacking).
Currencies and Treasuries are reversing downward trends, with the Mexican Peso leading, while US equity indices remain in Bull Quiet, led by Small and Mid Caps. Energy markets like WTI Crude remain in a neutral regime, traded with mean reversion strategies, while Natural Gas has shifted back to Bull Quiet after a correction.
Metals show mixed regimes, with Gold in Bull Quiet and others like Copper in Neutral. In agriculture, several commodities are in Bull Volatile, prompting reduced exposure, while others remain in Neutral. Bitcoin is firmly in Bull Quiet with a strong trend (we are long), while Ethereum and most other cryptocurrencies are in Neutral, traded via mean reversion strategies.
