Charts I'm Watching: July 18, 2012

ORIGINAL POST: 9:33 AM

SPX reacted off its .786 yesterday exactly as expected. For those who played the Gartley Pattern and shorted at 1364.24, I don’t think this dip will be significant. The potential Point D’s when we’ve put in a Point B at the .618 are: Gartley at the .786, Bat at the .886, and Crab at the 1.618.

Of course, if we get much of a reversal at the .786, it opens the door to that Point D at .786 being shoved into service as a Point B in a Butterfly pattern — which gives us a potential Point D at the 1.272 as well.

In other words, a .618 Point B opens up the possibilities of the next reversal being at practically any of the higher significant Fibonacci levels! The trick, with a smaller pattern like this, is to examine the various Point D targets and see which is most likely.