Over the past 5 weeks, our forecasts have been remarkably accurate.
The Butterfly pattern identified back on Mar 29 [All the Pretty Butterflies] correctly called the 1422 interim top. As anticipated on Apr 10, we got a bounce at 1357 (the .786 of the 1340-1422 rise) and began tracing out a head & shoulders pattern that fit with an analog of the Feb-May 2011 topping pattern [Analog Details].
The analog been very accurate thus far, although the initial right shoulder bounce had us wondering whether the alternate path to 1462 was playing out. Our RSI indicators kept us on the right path. Instead, we got a complex H&S pattern, with a second test of the neckline and subsequent round trip to the shoulder line, accurately forecast in both time and price.
Friday’s bounce at 1367 was within 2 points of our 1365 target [2d Time a Charm], with a nice little back test — as forecast — to the neckline, where we closed out the week. The only reason I mention all the above is that, while this degree of accuracy is always desirable, it’s not typical and should not be expected.
Regardless of how well your investments have performed the past five weeks, don’t forget that they are out to get you. Even now, as it appears that the analog is playing out nicely, the financial establishment is working overtime to separate you from your money. There will be more times, such as in January, when perfectly good harmonic and chart patterns don’t play out as they should.
Always use stops!
Now, with that out of my system, it looks like the results of the Greek and French election, on top of Friday’s dismal non-farm payroll numbers, is going to provide the push we need to get on with the downside.
Remember, our target is 1288-1323, although 1288 has been fudged to 1295 simply because a dip below 1292 would be problematic for the bulls from a wave count perspective; i.e., I think they’ll pull out all the stops to avoid it.
Potential bounces along the way include:
- 1349.42 — .886 of the purple Butterfly
- 1343.41 — 1.272 of the yellow Crab pattern
- 1340.03 — horizontal support, prev. Point X
- 1323.85 — 1.618 of yellow Crab
- 1317.63 — 1.272 of purple Butterfly
- 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)
But, I divide the downside into three basic scenarios:
(1) stick save: Fed freaks over Europe, QEish leak limits downside to 1349.
(2) top case: normal Butterfly completion to 1.272 (1317) or 1.618 (1289.)
(3) panic sets in: crash and test bottom or large red rising wedge around 1200.
I expected to be able to update all of the charts today, but my youngest daughter has been home with stomach flu while my wife and daughter #2 were at an all-day volleyball tournament. Needless to say, it wasn’t as productive a day as I expected. Look for updated charts Monday.
Over the next couple of days, I’ll finish converting the new website to a premium site. Many thanks to those of you who have joined up. I hope you’ve been able to act on my forecasts; if so, you’ve more than earned back your subscription costs in the first week.
To anyone still thinking about it, the end is near. The old site will still display articles of general interest and delayed market updates. But, members of the new site will enjoy the first and best of what I can put out. To join now, click here.
Good luck to all.