last week we saw how on the 30 and 60 min timeframes SPY both alerted for a possibility for a CD leg lower of an XABCD pattern. Although the subsequent pullback didn’t reach its target, it was good for a very profitable daytrade down to support around 205.
For the new members, and to refresh our memory here’s a quick overview of the daily chart. Back in August we mentioned the possibility we could finally see a correction, due to the fact that we had an alert for a chance of a start of a CD leg lower. This pattern (orange colored on chart) developed into a pullback to the 161.8%XA – 200%XA (XA being this years low to this years high up to that moment) , which was also inline with the 127%XA of the monthly chart. Subsequently this years high to this years low, together with the subsequent AB=CD formed a Gartley pattern, of which the PRZ (Potential Reversal Zone) was reached in October. (colored in blue on chart)
Since then SPY has been trading back in its zone it was trading in since February. This trading zone lasted some 6 months. We are now in month 2 of trading back in that zone. Since the correction we’ve see 3 higher lows, and two lower highs (almost perfectly aligned by a Supply line dating back to this years high).
Eventhough the highs and lows are outside the boundaries of the PRZ zone, it keeps coming back inside the PRZ.
So are we gonna muddle on rangebound sideways for another 4 months, or will it break out one way or another?
Let’s for the fun of it pull up a monthly chart again as well:
Last month’s high created a new Point C, so far. December just started, so it gets over last months high, that C point will re-calculate. but as it stands, an entry for a CD leg down starts at 204.25. this months low so far : 204.75. Again:.. the bar just started.
we see these patterns on small timeframes over and over, and it’s been my experience that rarely do we see a move over the 161.8%XA without forming a reversal pattern first. in other words, if this was a 5min or 15 min pattern, I would expect this yellow entry to play out into a bullish PRZ, at which time I would consider a new long entry. Or in the rare case that the trend is so strong it can break through it.
So to predict where the market is heading in the long run, I have to wait until either scenario plays out
- a break above the 161.8%XA (which is just about at this years high), which opens the door to a 200%XA target
- entry alert for a CD leg down, and then anticipate a reversal at its PRZ, or a further XA retracement.
IF, and that is pure speculation at this point, IF the current entry point gets broken to the down side, then we can calculate a PRZ
Plug those numbers into the calculator:
Ok, back to everyday trading:
here’s a 5min chart with all the XABCD patterns since last week:
Last week’s pullback was a bit extreme,since it surpassed a 161.8%XA,
But with last week’s hing to low swing, and the subsequent Friday’s high, we can see a possible larger XABCD pattern in the making, with today closing right at an entry that could start a CD up to 211.68, which is, surprise, surprise, right at November’s high.
On the down side we could see an XA from last weeks low to Friday’s high, and today’s low forming the AB leg, and today’s close a C point. in that case we need to see a break below the entry at 207.86 which could start a CD leg lower.
so that would be my initial objective for tomorrow:
above 208.43 (preferable 208.5, since that has been support/resistance on several occasions) for a swing higher.
or break below 207.86 for swing lower
If you’re new to harmonics, study this 5min chart carefully, watch how a bearPRZ (blue pattern on 12/3) can give opportunity for a new short trade in the direction of the larger pattern. or if price falls thru a PRZ it gives high probability of trend continuation (red and orange pattern on 12/2 and 12/3)