Are You A Fibonacci Fan? You’ll Like This Pattern
The 5-0 Pattern
In
January, I released a new harmonic pattern called the “5-0.” The 5-0 pattern is
a distinct price structure that possesses a specific of Fibonacci ratios that
define the setup. Although there is more to trading the pattern than mere
identification, the structure defines critical 50% retracements within the
context of the trend. For the purpose of this article, I will stick to showing
clear examples of the structure that are developing in critical markets.
However, to read more on the 5-0 pattern, I have made a free 13-page download
that defines the setup in greater detail. You may access the “5-0 Patternâ€
here.
The 5-0 Structure
The 5-0 Pattern is a unique structure that possesses a precise alignment of
Fibonacci ratios to validate the pattern. Although the 5-0 is considered a
retracement pattern, as the 50% retracement is the most critical number within
the Potential Reversal Zone (PRZ), the measurements of the various price legs
are slightly different than other harmonic patterns like the Bat or the Gartley.
The 5-0 is within the family of 5-point harmonic reversal structures and is
primarily defined by the structure’s B point — as is mandatory for all harmonic
patterns.
The basic premise of the pattern is to identify distinct reactions following the
completion of a contrary trend. Valid 5-0 patterns typically represent the first
pullback of a significant trend reversal. In many instances, the AB leg of the
structure is a failed final wave of an extended trend. Within Elliott Wave
terms, the AB leg may be a failed wave 3 of a corrective “abc” or a failed wave
5 of an entire completed trend. Although these are obvious similarities, from
the Harmonic Trading perspective, it is important to examine the structure via
its relative Fibonacci measurements to satisfy the pattern requirements.
Bullish 5-0
The following illustration clearly outlines the required structure and alignment
of Fibonacci ratios that validate the pattern. The most important area that
defines the entry for the bullish setup is the convergence of the reciprocal
AB=CD and the 50% retracement.
Bullish 5-0
Intel is reversing from a rather substantial Bullish 5-0 pattern after
consolidating for several months. Obviously, Intel holds serious weight on the
major market indices like the Dow Jones Industrial Average and the NASDAQ
Composite. This Bullish 5-0 pattern is signaling that the consolidation is
about to be broken to the upside.
Intel (INTC): Daily
The remarkable aspect of the situation with Intel is the recent reversal of an
even smaller Bullish 5-0 that completed last week. After reversing from the
larger pattern, the stock formed another smaller Bullish 5-0 after the initial
upside thrust.
When identical harmonic patterns like the Bullish 5-0 repeat, they must be
respected. For Intel, the valid reversals from both patterns are signaling
continued upside and a resolution of the long-term consolidation.
Bearish 5-0
In
the Bearish 5-0, the structure and alignment of Fibonacci ratios is the same
with the exception that the target entry is to sell the 50% retracement in
anticipation of the continued trend.
Currently, the Euro possesses a distinct Bearish 5-0 pattern on the daily chart.
After the sharp rally at the end of last year, the Euro declined steadily. With
the good news on Friday of last week, the Euro rallied up to the Potential
Reversal Zone (PRZ) of the Bearish 5-0, where the critical numbers identified
the 13220-13260 area as significant harmonic resistance. The Euro has traded as
high as 13270 in recent weeks but appears to be stalling in this area. I must
emphasize that this one of the most critical pattern formations for the currency
in nearly a year. Specifically, I would watch this harmonic resistance zone on a
retest as a potential selling opportunity. With such a distinct pattern on the
daily chart, this is the area to watch for the continued correction of last
year’s incredible Euro rally. If the Euro is able to take this resistance out,
it will likely reach to test the prior high. This could resolve soon and it must
be monitored closely.”
EURO (EUR_A0-FX)
Although other techniques such as
indicators are extremely effective to confirm the completion of harmonic
patterns, distinct 5-0 patterns like the Intel and Euro examples provide
substantial information regarding the potential state of the price action like
no other method. From the Harmonic Trading perspective, these situation
represent ideal pattern structures that must be respected and monitored
closely. I will release the 5-0 pattern in my next book, Harmonic Trading of
the Financial Markets: Volume II in June of this year. Again, you may
download a detailed report on the report for FREE
here.
Enjoy!
Scott Carney