Two Targets Down…

Yesterday, we hit our initial downside target laid out over the weekend [see: So Far, So Good] when we nailed the Fibonacci .886 retracement of the Butterfly pattern (purple) we’ve been following since April 10.

We bounced hard there, as the RSI chart indicated we might [see: 3rd Time a Charm] and completed a back test of the H&S pattern neckline [see: Back Test Complete] by actually closing on the neckline.

This morning, we bagged the next target on our list, the 1.272 extension of the smaller Crab pattern (yellow) at 1343, which has me wondering…what’s next?

Not that it always works this way (enjoy the streak!), but here’s the original list:

  • 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)

The charts say there’s plenty more downside.  My top case remains 1289-1317.  Though we’re back to that RSI trend line (k-5) that provided yesterday’s bounce.  We can get to 1289 with a cross of that trend line or without. It’s a matter of “recharging” RSI with bounces such as we saw yesterday and this morning.

At the end of the day, the “bottom” should exhibit positive divergence, and we’re nowhere near that yet.

So, is it time to pile on more shorts?  If we’ve scored 5 waves down, we should see an a-b-c corrective wave.  As I posted last night, there’s a potential small H&S pattern developing in the right shoulder of the larger pattern.  Prices could loiter in the 1340-1370 area for a day or two and flesh out the small right shoulder before continuing down.  A 7-pt gain at the close would shake out lots of shorts.

This would offer the added benefit of fully recharging RSI/MACD for the next push down — a very helpful development, should it occur.  I’ll be watching to see if RSI heads up into the intersection of that bold yellow trend line above with the bold yellow channel.

Good luck to all.


Now, we see that the euro zone is considering holding back the next installment of Greece’s bailout, some $5 billion or so. They have this crazy notion that the Greeks might renege on the austerity package/debt restructuring previously agreed to.  All together, now: “duh!”

Whatever your opinion of why Greece has money problems, the bailout did very little to help the Greek people, who just expressed their heart-felt feelings about austerity in the voting booth. It mostly bailed out the bankers who made too many stupid loans to Greece (gee, where have we seen this before?)




Two Targets Down… — 4 Comments

  1. I’m curious how you’re defining the “yellow crab.”  From what I’ve been reading (mostly Scott Carney) a valid Crab should finish only at 1.618 of XA and point D should be between 2.618 and 3.618 of BC.  What are the limits you look for in Harmonic patterns?  Do you have a Harmonics books/websites you would recommend?

    • In the top chart, the yellow crab is indicated by the large, yellow letters X-A-B-C-D against the background of a yellow Fibonacci retracement grid (easier to see Points B and C on the 60-min chart.)  Point D is at the 1.618 of 1323.85.

      Point B is at the .382 retracement, making this a valid Bat or Crab.  Bats’ Point B must be less than or equal to .618, while a Crab can go up to .886.  So, it’s a potential Bat (completing at the .886) until it extends beyond that — as this did.

      Once it went past the .886, and especially the 1.000, I label it a potential Crab and start planning for a 1.618 completion.  The D as a function of BC is less important, IMO, than the absolute requirement of a 1.618 times XA. 

      Once a Crab completes at the 1.618, many go on to tag further extensions such as 2.24, 2.618, 3.618 etc.  AAPL comes to mind.

      Not sure what you mean by “what are the limits…”  Could you elaborate?

      You will find different opinions on these elements out there; these are the ones I have embraced after using them countless times.  For more on Crabs, check out:    I’ve seen harmonics discussed on lots of websites, but I’ve tried to make this the best explanation out there.

      Hope that helps.

      • That does help some.  By “limits” I mean the retracement ranges…for example the Gartley shown here  

        Your statement about a Crab completing at 1.618 and then going on to 2.24….  explains the targets you listed above, but by adding these extra extensions do you not start to blur some of the clarity provided by Harmonic patterns?  

        • Each harmonic pattern has its own limits.  Gartleys complete at the .786, Bats at the .886, Butterflies at the 1.272 or 1.618, and Crabs at the 1.618 (or bigger extension.)  Read the articles for more detail on each.

          The trickiest thing about trading harmonics is anticipating the size of the reversal.  Suppose I told you to expect a 10-point reversal, then a resumption of the trend; you’d trade it differently than a 100-pt reversal, right?

          That’s what happens with Crabs.  Sometimes we get a nice little reversal at the 1.618, then it resumes and does the same at the 2.24 or 2.618, and again at the 3.618, etc.  AAPL comes to mind.

          This challenge it presents is best mitigated by:

          (1) trade style/strategy (are you a scalper or swing trader?)
          (2) stops (especially helpful when the reversal is small)
          (3) corroborating evidence – hints as to subsequent movements.

          It’s where the rubber hits the road, and what I’m constantly trying to get better at.  There’s always someone on the other side of the trade trying to outsmart you!