Patterns, Patterns and More Patterns

SPX is off to a strong start, up 11 at 1279 with Personal Income about where it was expected, positive rumblings on the Greece problem, and a White House pow-wow to try to break the debt ceiling impasse. The way we’ve started, I expect today to leave a bullish engulfing candle on the day.

Last Thursday’s high was a .618 retrace of Wednesday’s high, and we’ve retraced .786 of the rise from Thursday’s low.  In other words, we’re about 3/4 of the way through a Gartley Pattern.  It sets up for a possible reversal at 1290.69 (.786) or 1294 (.886) with a .618 target of 1276.

Gartley?  Crab?

But, the downturn may not be that substantial.  If momentum remains strong, we will have completed an inverse H&S; we’ve been working on since June 10.  The upside potential would be 1320.

At 1320, the CD leg in the Gartley Pattern mentioned above would also have extended to 1.618 of the XA leg and 3.14 of the BC leg — a perfectly-formed Crab Pattern.    But, look what else happens there: a big, fat Bat Pattern that’s retraced 78.6% of its June 1st high at 1345.

Bat Pattern?

If you read this weekend’s post Cliff Diving, you know that a bounce to 1320 would be perfectly in keeping with historical retracement activity and would reflect very accurately the price action when the 2007-2008 market topped.

I was telling someone just last night that I love it when various indicators come together, pointing toward the same result.  These harmonics-based possibilities rely on certain things coming together — chief among them, now, that we complete the IHS at 1290.  But from there, it seems like a reasonable roadmap to 1320 that would catch a lot of bears off guard.

As regular readers of this blog know, 1320 is the intersection of lots of important trendlines.  You can read more about it here.   The bulls will be popping champagne and lighting cigars with $100 bills again, anticipating new highs.  Won’t happen.

I expect the resistance provided by the line down from the 1370 top to stop any further advances cold and mark the termination of Wave 2 of (1) of P[3].  The completed Bat and Crab patterns will also point the way down.

The initial target would be 1291, the 61.8% Fib level.  Aside from a brief bounce, we should head down to test and ultimately break through the previous lows at 1258.

I’ll be traveling most of the rest of the week, so won’t have much time to blog unless something big happens to change my viewpoint.   Have a great week everyone.


Patterns, Patterns and More Patterns — 3 Comments

  1. Completely put my foot in my mouth there. I live in Korea, and honestly I don't pay attention to dates, which unfortunately includes my wife's birthday, our anniversary, national holidays, and anyone's birthday for that matter.

  2. Thanks, dm, I appreciate the kind words. Agreed re Friday. Would it be too ironic for us to celebrate the 4th by throwing a bear market?