Pattern-Rich Environment

  • September 19, 2002
  • Derrick Hobbs

The Dow Diamonds
(
DIA |
Quote |
Chart |
News |
PowerRating) have
played out as planned so far (see Sept. 17
column). After the neckline of the
head-and-shoulders pattern was broken, this ETF has taken a nice ride down, falling
from 82.75 around the neckline down to a low today of 79.15. That translates
to over 350 points on the Dow Jones. So for meaningful purposes, this head-and-shoulders pattern has done its job.
Now I’m shifting gears to a pattern that
is coming to the forefront:

  1. DIA is now forming
    a two-step pattern into a Fibonacci price support zone from 77.39 – 79.18.

  2. This two-step pattern is actually a Bullish Gartley Pattern. This is basically
    a two-step pattern with specific Fibonacci ratios for each section of the
    pattern.

  3. I also have three Fibonacci time cycles showing
    Sept. 23 – 24 for a
    time frame that this ETF could put in a low.

  4. So, now with a bullish pattern, Fibonacci price support, and time cycles
    calling for a low to be put in, I have to start considering long trades against
    this support zone.

  5. If I do get a trigger to go long against this zone, my initial stop would
    be just below 77.39.

  6. The other side of this setup is if DIA keeps going down. Think about this…if
    DIA trades down below 77.39, it will be violating price support, time cycles,
    and a textbook pattern. What does that say to you? I’ll tell you what it says
    to me…this market is weak!

  7. Bottom line: listen to what the market does against this very critical
    price support zone. Be ready to act on both sides.

Finally, I want to update
you on our Beazer Homes
(
BZH |
Quote |
Chart |
News |
PowerRating) set up. If you recall from the
Sept. 12
column,
(
BZH |
Quote |
Chart |
News |
PowerRating) was in “Reflection” mode. It was in a countertrend rally that
was up 19 points. That countertrend rally basically was a mirror image “Reflection”
of the previous rally which was also 19 points. Well, (BZH) hit a key Fibonacci
price resistance zone at 73.30 as it was “Reflecting” and six trading days later
it’s now trading around $63. In our chat room we have just lightened our position
and took some profits in BZH and moved our stop down to at least breakeven
to reduce/eliminate risk in this trade. We are hitting a price support zone
as we speak. If this zone is cleared to the downside, then we have a good chance
to hit the final objective on this trade down around 49.06. Critical point here
is that we did take partial profits and moved our stop down. Money management
is key!

Good night!

Derrik