Bulls, Bears, Butterflies And Gartleys
Throughout these columns,
I reference various patterns that occur against a Fibonacci price support or
resistance zone. I want to clarify two of those patterns in this column and
even show you how they are actually associated. Not to mention these chart examples
reflect today’s close so it’s “fresh” meat, baby!
First, let’s tackle the
Gartley pattern. It was created by H.M. Gartley, and first published in 1937 in his
book “Profits In The Stock Market.” Gartley describes this pattern as a “re-test”
of a top or bottom. The pattern is an AB = CD parallel move attempting to make
a new high or low. In fact, point “D” in a Gartley Pattern should stop around
the .786 retracement of swing XA.
Below is an example that is in play right
now with Omnicom Group
(
OMC |
Quote |
Chart |
News |
PowerRating):
In this case we have just
hit the .786 retracement of swing XA. Not to mention this area is a nice Fibonacci
support zone from 49.64-51.26. So with this pattern in place against a price
support zone I am looking for triggers for long trades. If I get the opportunity
to be a buyer my stop would be just below 49.64. Per H.M. Gartley the profit
objective on this pattern is the .618 retracement of swing CD.
Now, let’s say in the (OMC)
chart above that price does not hold our support zone and the pattern fails.
What next? Typically when this pattern is broken it will make a quick move to
the 1.272 to 1.618 extension of swing XA. By doing that it forms a Butterfly
pattern. So the only difference in a Butterfly and Gartley pattern is where
point D ends in relation to the XA swing. In the case of (OMC) I find it interesting
that if the first support zone does not hold the next Fibonacci price support
zone is right at the level where a Butterfly pattern would complete. Some traders
I know will wait for the Bullish Gartley pattern to be broken and go short down
into the Bullish Butterfly completion area. (Credit for the Butterfly Pattern
goes to Larry Pesavento and Bryce Gilmore.)
The Nasdaq 100 Tracking Stock
(
QQQ |
Quote |
Chart |
News |
PowerRating) has basically completed a Bullish Butterfly
Pattern into our Fibonacci price support zone from 19.61-20.19. So I would not
be surprised to see a bounce around these levels. Now, if that price zone does
not hold QQQ then the next likely stop will be 17.42-18.26 where the next Fibonacci
price zone exists.
Finally, another week has
gone by and I want to continue to post the Weekly chart of
(
SPY |
Quote |
Chart |
News |
PowerRating). We are
sitting on a key Fibonacci price support zone. If this zone and the low in July
is broken to the downside, I propose that the next stop for SPY is down around
69.00-72.00. There are no Fibonacci zones to act as support between these two
areas. So be aware of this higher time frame as you trade next week.
Good night!