Harmonics Are Your Friend

It seems longer than seven weeks since we led with this chart on Sep 14 [see: The World According to Ben.]   QE3, the ECB’s latest stick save and the German Constitutional Court’s pro-ESM decision had all just been announced.  According to just about everyone, stocks were about to explode higher.

To me, it was a long-awaited shorting opportunity.

Meanwhile, SPX is nearing our 1472 target. I will ease some stops into the equation as we approach it, as I’d like to remain long for as long as possible.  This is a 35 point gain since we went long yesterday at 1437 with the Fed’s announcement.

And, less than an hour later…

Going ahead and pull the plug on my longs here at 1474.  The 5-min, 15-min and 60-min charts are all showing negative divergence.  I’ll place stops at 1475 or so, trailing lower as need be, just in case it makes another run higher.

It wasn’t rocket science — just a big Bat Pattern that had finally completed.  Those who simply hung on to that short position scored 86 points for a nice 5.8% gain.  For buy and hold types, it’s been a great trade that is nearing an end.

For us swing traders, it’s been a wild ride with (much) higher returns [Results] from anticipating the swings that had most analysts scratching their heads.  Yet, most of the swings were signaled by Harmonic Patterns and/or chart patterns that usually agreed.

We were able, for instance, to short again just ahead of yesterday’s plunge — earning me some sympathetic private messages from well-meaning friends [“Are you sure, man?  This one seems kinda out there, especially without any election results yet.”  B.B.]

This is essentially the same chart as above — seven weeks later.  We’re coming up on the next Fib level lower — the .786 retracement of the 1576 to 666 crash.  And, it just so happens that we’re nearing the SMA 200 at 1380.80.

Not shown on this chart, there’s also a Crab Pattern completion at 1384.13, not to mention the .786 of the 1354 to 1474 run at 1380.30.  So, as the rest of the investing world is jumping on the bearish bandwagon, harmonics are signaling another important and unexpected turn.

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