Trading What I See

You’ve probably noticed that recently I seem to be showing a slightly larger picture of market action. Actually I try to look at this every day, but since right now I can’t follow the market in real time (and may not be able to for another month), the larger picture is what I see first. And it has been providing interesting information.

On Thursday I pointed out the Trader Vic 2B Top. They don’t always work out, but since they allow a close stop, I never ignore them. They are, of course, a specialized instance of the Spring patterns I like to trade. Since the pattern took over a day to form, it was a warning that the larger trend had probably changed to down.

Friday and today completed what is called a Downside Triangle with a downside break after about four hours of trading. Triangles of any type usually break with a strong price surge, and today was no exception. One thing I watch for in all patterns, but particularly in triangles, are internal Fibonacci measurements. The better the Fib setup, the more likely the triangle is to work as expected.

I have three peaks numbered in the chart representing the three rallys making up the triangle. The second rally is 62% of the first, and the third rally is 62% of the second. That type of symetrical pattern seems to make the breakout more likely to reach its minimum target. In this case the target is the parallel to the upper edge of the triangle which we hit near the close.

The triangle itself is made up of an A-B-C pattern which has passed the two first logical Fibonacci targets. Notice how it tried to bounce at 100% and 162%. If it continues, the next target will be 262% which usually creates a bottom. And if it develops into any kind of panic move it could drop to 426%. Check out a longer term chart and you’ll find old congestion near these levels.

Which doesn’t mean we won’t turn around tomorrow morning. Fibonacci targets are not predictions, but if you’ve read this commentary for very long you are aware of how often they work out.