On April 2, 2012, SPX completed a Butterfly Pattern at 1421 — the 1.272 extension of the July – October 2011 plunge.  It provided a great entry point for the fledgling pebblewriter.com’s first major short position.

We scored over 20% in about 2 months [see: All the Pretty Butterflies] trading the 11% decline.

XLF hadn’t done as well up to that point.   It had only retraced a Fibonacci 78.6% of its 2011 decline from 17.2 to 10.95.  So, no surprise that it sank by a whopping 18%.

In response to a consulting client who was bottom-fishing for financials, I discovered they were probably bottoming in early June.  I posted my results in the appropriately titled:  So Crazy It Just Might Work.  If anything, my estimates were conservative.  XLF has soared 41% since that low (turns out it was the day before.)

And, wouldn’t you know it, XLF has gone and formed its own Butterfly Pattern — just like SPX did in Apr 2012.

continued for members…Now, there’s no guarantee that it’ll reverse at the 1.272 extension.  Butterflies can and do extend to the 1.618 Fib (21.06) all the time.  But, if prices start getting a little squishy around 18.90, you’ll know why.

One caveat: as nifty as that rising wedge from Apr 2012 is, it is no more legitimate than the rising channel in the chart below.

The top of that channel has already reached the 1.618 extension at 21.06. Next up, the .75 line around May 23.  If prices don’t react much at 18.9, that’s our next target.

GLTA.