These Patterns Are Powerful
By now, readers of this column should be familiar with
the various patterns that I’m looking at, like a Gartley or a Butterfly. When
one of these patterns “print†on a chart, it definitely has my attention.
Typically, the presence of one of these patterns is a precursor to a reversal
move. The flipside to the reversal is when a pattern fails. Pattern Failure
indicates that the trend in place is strong and that there is a high likelihood
for momentum to carry that stock or commodity further in the direction of the
trend.
As I look at the broad market there are two “bearish†patterns printing
on two inversely correlated trading instruments on the same time scale —
30 Year Treasuries
(
USM3 |
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PowerRating) and the
Nasdaq 100 Tracking Stock
(
QQQ |
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PowerRating). In
fact, the semiconductors also have similar bearish patterns visible in the
Semi HOLDRs
(
SMH |
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PowerRating).
Below is a chart of the 30 Year Treasury Futures
(USM3). Basically, we have completed a Bearish Gartley pattern into resistance.
There was a two-day sell off that pushed this contract down into a support zone.
Today, this contract bounced up off of that support zone. Now, the situation to
watch here is if we violate the high made a couple of days ago. Based on that
market action, it would suggest this contract is going to new highs and that a
momentum up side scenario would develop as the Bearish Gartley pattern would
“fail.â€
Side note: Most failed Bearish Gartley Patterns run higher to complete Bearish
Butterfly patterns. Now if that bullish bond scenario develops, it would be the
likely catalyst for at least a short- to intermediate-term sell off to develop
in equities.
Now, on the flipside check out
the charts of
(
QQQ |
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PowerRating) and
(
SMH |
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PowerRating) below. Both have bearish patterns
completing into Fibonacci resistance.What if these patterns fail? The
implications are likely two-fold. First, QQQ and SMH continue running higher.
Based on previous columns I’ve written, it would be further evidence that the
Q’s are headed to 31 to 35 to complete a bigger-picture ABC corrective wave
series. The other implication would likely put pressure on the Long Bond (USM3)
and the Bearish Gartley pattern on that daily chart would stick and lead to
further declines.
Bottom line: One pattern will
fail and one will hold. Pattern Failure will lead to a momentum trading
environment and the pattern that holds will lead to a reversal trading
opportunity.
What are the implications of these bearish patterns on the daily charts of these
instruments? First, I will guarantee that one of these patterns fail. For the
pattern that fails the reward is a continuation of the immediate trend.
By the way…did you see Apple
(
AAPL |
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News |
PowerRating)
today? After great news on the ITunes Music Store they just opened, the stock
rocketed upward. Would there have been a way to ride this move? As a matter a
fact, there was a Bullish Butterfly that completed just a few short days ago.
These patterns are powerful, folks…gotta respect ‘em.
 Have a great night!