Charts I’m Watching: Jan 17, 2013

This morning’s post started out as an observation from a long-time member (hat tip to Beach Justice) and turned into a meaningful detour.

PW – Does the candle pattern off of the recent 1400 low look a lot like the candle pattern from Sept 6 to Sept 24 to you?  We have a couple big green ones, one smaller green one on top that hit the high, then a bunch of tiny consolidating candles before it moved lower.  Also, always good to see another Ghostbusters reference, love it [2nd hat tip!]

I took a look and was impressed by the similarities.  As BJ pointed out, they had very similar form.  But, it went beyond that.

The September 2012 high was a big Crab Pattern that measured 77.95 from top to bottom and took 17 sessions from inception (the interim high at 1426) to the top.

The latest high is also shaping up as a Crab Pattern.  It’s been going for 19 sessions and measures 75.85 points (so far.)

Interestingly, had the first pattern stopped on a dime at the .886 Fib retracement of the 2007-2009 crash (i.e. 1472.43), it would have measured 75.86 points in all.  Hmm….

Not one to believe in coincidences, I set out to look at other tops over the past few years.  This is where it got really interesting.

In May of 2011, SPX completed an important top that looked sort of familiar.  That’s the same sized shaded box, BTW, just for comparison purposes.

This Crab Pattern top also took 17 sessions to complete and ranged 75.88 points. Hmm…

With all that out of the way, let’s turn our attention 2007 — the really interesting double top.

These two were slightly smaller in price range (68.96 and 71.72 points) but still lasted 16 and 17 sessions.  The first completed a Butterfly Pattern rather than a Crab.  I attribute this to the horizontal resistance stemming from the 2000 top at 1552.87 (red, dashed line.)

I find it very interesting that the 2nd top came in the wake of a completed Inverted H&S pattern — much like what happened on Jan 2 of this year.

There was a fifth pattern that looks somewhat similar: April of 2012.  By transposing the shaded box over this pattern, we can see that this one is slightly larger.  It slightly exceeded the 1.618 extension, completing a Crab Pattern in only 13 sessions, then moved sideways for a few days, reaching its 1422 high near the 2.24 extension in a total of 23 sessions.

I suspect this was the result of the proximity of two competing harmonic patterns and the lack of a nearby major Fib level.  The closest was the .786 at 1381.50 — which this pattern tagged at the entry point to the topping pattern.

The dip and subsequent rise to complete the Crab Pattern crossed back over the .786 Fib, and offered two viable alternative targets that likely confused many harmonics watchers [it did me, as detailed in All the Pretty Butterflies.]

So, what does this all mean when the market is set to establish a new high that breaks the pattern?

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