Are We There Yet?

Reposted from Thursday, May 12, 2011

While it would be easy to jump on the P[3] bandwagon right about now (and it wouldn’t take much convincing) a note of caution is in order.

A pullback that stalls in the low 1320’s on SPX would leave a fairly well-formed bullish Bat Pattern. Point B should be a few points lower, allowing a fuller CD extension to .886, but these things are rarely perfectly formed.

Why should we care?  Bat Patterns work well in forecasting market moves.  It’s estimated they’re successful about 70% of the time — house odds, if you will.  The most recent notable example was on March 4.  After the market had nearly recovered from the previous 8 days’ mini-crash, many were expecting further gains.  A Gartley Pattern — close cousin to the Bat — correctly forecast an 80 point drop.

A bullish Gartley Pattern that plays out successfully from 1321 could be expected to boost the SPX by a quick 24 points to 1345, with an ultimate target of 1391.  I don’t believe in coincidences (unless CNBC tells me to) but 1391 also marks the upper bound of the rising wedge from Mar ’09.
It’s also only 10 points north of the .786 Fibonacci (off the Mar ’09 lows) levels at 1381.50.

If we don’t turn down from here, and that’s a BIG IF, I expect P[2] to finally die between 1380-1390 sometime in the next 10 trading days.  It coincides perfectly with my 87-day cycle of downturns, but these cycles have taken up to 105 days, so it could be as late as June 3.

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