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Tuesday, February 28, 2012

Gartley Patterns Explained: February 28, 2012

The Gartley Pattern offers early warning of potentially significant reversals in price trends.  Like all Harmonic patterns, it is formed by a series of specific Fibonacci reversals of price moves.  It is thought to be successful about 70% of the time -- much better than house odds.  Combined with sound trade management technique, it can provide significant returns with limited risk.

It's a rare week that I can't find a decent looking Gartley Pattern set up.  On November 7, 2011, I saw one forming on SPX and posted about it here.  With SPX at 1261, the Gartley indicated prices would rise to 1276.13 and reverse.  Here's the chart I posted that afternoon; the purple line shows the forecast move.

The following morning, SPX opened at 1261.12, raced up to 1277.55 and closed at 1275.92.  The next day saw a 50-point reversal.  Each $1 invested in at-the-money SPY puts on the afternoon of the 8th was worth $3 the next day on the 9th.  Pretty cool, huh?

Let's take a look at how Gartley Patterns work, using the actual prices from October 27 - November 9, 2011.  I'll use the daily chart from that period to illustrate.

A Gartley begins with a significant directional move.  The origin is labelled X, and the terminus is labelled A.  The size and timing of the original move isn't crucial; I've played some Gartley's that spanned years and others that spanned an hour.

The reversal at Point A establishes the low of the pattern and our first leg, known as XA.  Next comes a move back towards the origin price -- aka a retracement.  In a Gartley Pattern, a retracement always occurs at the Fibonacci 61.8% of the XA leg -- meaning simply that we have recovered 61.8% of the initial price drop.

Note, Point B can be off a little, but a very big miss means it's probably going to be some other kind of pattern -- or none at all.   Here, our Point B came in very, very close to the .618 level: 1263.21 versus the ideal 1263.15.  At this point, we start to wonder if we have a potential Gartley on our hands.

The ideal BC leg will typically range from 23.6 to 88.6% of the AB leg -- although this is the least critical measurement of the entire pattern.  I've seen Gartley's successfully play out with tiny little BC legs, and others that retraced almost the entire AB leg.  Here, we saw a 31.5% retracement.  It's not a Fibonacci number but, again, it's just not that important as long as it looks like a significant reversal.

The next phase of the pattern -- the CD leg -- is the most thrilling.  We know, as we pass our previous Point B at the 61.8% level, that the 78.6% level waits up above.  Knowing a reversal is coming, especially when everyone else is getting more and more bullish, is both scary and exciting.

In this case, the ideal Point D was 1276.13.  Again, this represents a 78.6% retracement of the initial price drop from X to A.  We surpassed it just a little, hitting 1277.55.   A little overrun isn't unusual, especially -- as happened here after a 16-point gain -- the market has a head of steam on it.

The next phase is the fun part.  After reaching Point D, a typical Harmonic Pattern reversal is 61.8% of the AD distance.  In this case, that would have been a 39-point drop.  Instead, we had a 81.9% drop the next day for a whopping 50-points (3.9%).   At times, reversals can go beyond Point A for a 1.272, 1.618, etc. extension of the AD distance.  In fact, over the following 11 sessions, SPX fell an additional 64 points for a nearly 200% extension -- a remarkable 5:1 return for those at-the-money puts.

As mentioned earlier, Gartley's don't always work.  So, it's prudent to plan your trades carefully.  Many traders, for instance, will jump in just before a target is hit and place a stop just on the other side of their target.  I have several rules that I typically follow to limit my risk when putting on such a trade. I also look for corroboration from other chart pattern and technical analysis.

The Gartley is just one of several Harmonic patterns I watch for.  Some, such as the Butterfly and the Crab, often result in much larger reversals.  On the new website, I will discuss each -- using actual examples from the past few months.  I will also identify patterns I see setting up on various securities/indices and in different time frames -- as well as the trades I'm using to capitalize on the patterns.

Look for any updates during the day in the COMMENTS section below.


Our model portfolio is up 2.27% so far for our first week.

Super Tuesday: February 28, 2011

UPDATE:  11:15 AM

The market is shrugging off the horrible economic news, meaning it likely has more upside in store.  Remember, we have several targets we've been discussing for the past few weeks.

The big Gartley that started in October 2007 at 1576.09 never quite reached its .786 Fib level in May, coming up 11 points shy of the 1381.50 target.  With yesterday's new intra-day high, I'd say it's definitely back in focus.

Likewise, watch the Butterfly pattern that started on 10/27/11 at 1292.66.  Its 1.618 is immediately ahead at 1375.47.  We reached the inverse H&S targets (1272) we discussed on Feb 23.  The larger of the two was triggered was back on Dec 27.  And, because yesterday's intra-day dip broadened the rising wedge, the apex has risen to about 1396.50.

After yesterday's rally, our model portfolio is 100% in cash.  We booked a quick 1% gain on the opening plunge, then closed almost all our shorts/puts.  The AAPL position I tried at the double top was quickly stopped out.

I will look to initiate more shorts around 1375 and 1380, but will place fairly tight stops.  I might try a little put position on AAPL when it hits its 2.618 at 529.25.  More on specific trades later.


Lots of big economic news out today...  starting with the durable goods orders decline of 4% month-over-month.  Ignoring the seasonal adjustment, which I hope I don't need to mention by now, the actual drop was a whopping -15.3%.  While still 8.8% better than 2011's January figures, both the 4% and the 15.3% data suggest all is not well in recovery land.  BTW, inventories were up 3.1%, a figure that will weigh heavily on tomorrow's GDP report. 

Next up, the Case-Shiller housing data at 9:00 and Consumer Confidence at 10:00 AM EST.

Case-Shiller home price indices just out, and they're not pretty.  The national composite was off 3.8% in 4Q2011, and down 4% versus 4Q2010.  The 10 and 20-city composites were both down 1.1% in December over November, and fell 3.9% and 4.0% respectively versus December 2010.  All three composites are at their lowest levels since the housing crisis began in mid-2006.

Nationally, home prices are back to their late 2002 levels.

Consumer Confidence from the Conference Board just out -- up to 70.8 from 61.5 with the bulk of the increase coming from "expectations" as opposed to "present situation".  The expectations index increased from 76.7 to 88.0, while the present situation index increased from 38.8 to a still dismal 45.   From, a graph showing how far we've fallen, and how long the road back.

Remember, there's a lag with survey reports like this -- which means that the recent run-up in gas prices hadn't yet been felt when these results were tabulated.  Look for the cheerleading-amped numbers to ease once consumers experience a few weeks of $80 fill-ups for the Sienna.

Monday, February 27, 2012

Charts I'm Watching: February 27, 2012

UPDATE:  11:45 PM

Very strange day in the markets...   Earlier this morning I posted:
Worst case scenario for the bears is yet another false breakdown that bleeds off positive sentiment and overbought conditions, allowing a further melt up.
What did we get?  Another false breakdown that bled off positive sentiment and overbought conditions, setting the stage for the melt up to continue.  Really gotta learn to keep my big mouth shut!

It doesn't bother me to have made a small gain on the day.  It's just that the reversal was, IMHO, another completely bogus move -- made possible by a few rather lame news items on pathetic volume.

Pending home sales are up?  Really?  Check out the actual numbers published by the Realtors (as if they could possibly be taken seriously...)

Jan 2012 was up 2% from December, 8% from Jan 2011.  As I always say, though, ignore the seasonally adjusted numbers.  "Seasonally adjusted" is simply another term for "manipulated."  These people, even more so than most of the outfits who publish economic data, have an agenda.  They want us to believe the real estate market is better.  If we do, we'll buy more homes, and they'll get to keep their phoney baloney jobs, gentlemen.  Hrumphhh.

The real numbers are labeled "not seasonally adjusted."  If we are to believe their raw data, January 2012 pending sales were indeed higher than December 2011, at 78.2 versus 63.8.  But, the index was still lower than any other month in the past year -- going all the way back to Jan 2011.

Wait, you say, index?  What index?  Oh, yeah... these numbers aren't actual reported contracts on homes, but an index derived from a survey of 100 MLS's and 60 large brokers -- all of whom also have an agenda.  An index of 100 relates to the average level of contract activity from 2001; so an index of 78.2...still pretty much sucks.

Then, there are the issues of quality of sales (foreclosures/REO versus traditional sales) and the lovely little ramp up in foreclosure activity just getting underway. 

BTW, there's a great piece over at Naked Capitalism on the scam foreclosure "fix" being offered by the OCC.  Check it out.

UPDATE:  1:00 PM

SPX up 4 on the day, 15 pts off this morning's lows at 1370.48 for the day's high.  For anyone watching, this puts us only .10 way from where we started in May.

Now, like then, we have negative divergence on the daily and hourly charts -- the purple TL on the RSI -- and MACD that looks like it really wants to roll over. 

The rising wedge, normally so reliable, managed to widen a little with this morning's head fake.  As I've discussed several times lately, these normally reliable patterns have been redrawn many times over the past two months, with dips that fail to follow through to the downside.

The net effect, however, is a gradually decreasing slope to the melt up -- meaning that over time we will get to the top of a hill.  The rate of change graph illustrates this phenomenon pretty clearly.

We got a double top on AAPL to go with the one on SPX -- tagging the RSI TL on the 60-min chart as we discussed earlier.  I'm putting on a little position (5 Mar 510 puts @ 5.95) in our portfolio with the intention of bailing on any follow-through to the strength, or adding to a pullback.  I'll put in a tight stop just above the previous high.

UPDATE:  11:45 AM

German Parliament approved the latest Greek bailout package.  Markets reacted by soaring .00001% higher.

UPDATE:  10:45 AM

Closed out the rest of the AAPL puts on the break of the 60-min RSI TL -- evidence it was more than a back test.  Took a small loss on these, leaving me up about 1.1% on the day.


I would be tempted to take the long side, but that purple RSI TL coming down off the recent highs is bothersome.  From the looks of it, it'll be tagged within the next couple of hours and could serve as another reversal point -- probably marking at least a double top.  The daily pattern shows no signs of a reversal, despite the fact that we're well overbought and  operating in nose bleed territory.

With SPX back in positive territory, I'll look for new entry points with lots of dry powder. I don't usually

UPDATE:  10:05 AM

The decline, which seemed to be pretty solid just after the opening, is fizzling.  We saw a good bounce off the 60-min RSI, and haven't seen the rising wedge break just yet.  Worst case scenario for the bears is yet another false breakdown that bleeds off positive sentiment and overbought conditions, allowing a further melt up.

I closed most of my shorts, scalping an overall 2% daily gain on the portfolio -- leaving half my AAPL position just in case the bounce is just a back test.  BTW, AAPL is just a way for me to take the contrary position on the market's overbought condition.   I'll jump back in if it appears we see a more significant break with a completed back test.


On Friday, I constructed a $100,000 portfolio to track the actual trades I had been making.  It doesn't reflect my cost basis in my existing position, but it'll allow us to follow specific positions on an ongoing basis.  I'll generally limit individual names to 5% or less of total equity.

This portfolio will be growth oriented, but significantly less aggressive and active than my usual trading style. I will utilize ETFs heavily, and options less so -- so I have some adjustments to make.  I'll rarely put on anything that looks like a fixed income instrument, unless there's a price move I'm trying to capture.  I'll try to update it daily with targets, stops and the like as appropriate and will post trades as they occur.

I continue to hold a short bias, with small put positions on AAPL, MSFT and SBUX, calls on VXX, a short position in GLD and a small spread on SPY.  Current positions include:

  • 10 AAPL Mar 510 puts @ 7.5
  • -25 GLD ETF @ 172.13
  • 25 MSFT Mar 32 puts @ .88
  • 25 SBUX Mar 47 puts @.49
  • 5 VXX Apr 20 calls @ 5.20
  • 20 SPY Mar 136 calls @ 2.16
  •  -20 SPY Mar (Wkly) 136 calls @ 1.42

It's a fairly non-committal portfolio at the moment - almost 90% cash.  While I am still bearish on the market, I'm waiting for more confirmation before diving in more aggressively -- particularly on SPX.  A broken rising wedge would be a good start...

I'll try to post charts on each of these positions throughout the day as time permits.  My first task is to make a decision on gold.  The daily chart is showing significant negative divergence, but the 60-min chart is threatening to break out of the little channel it's been in.  More later.

SBUX daily RSI broken trend line.

AAPL 60-min RSI broken TL and reversal off the .886 on the Bat pattern.

More later.

Friday, February 24, 2012

Why Worry?

Those wacky Fed governors are at it again -- Bullard going on about how housing won't recover for years, and Williams pounding the table for aggressive stimulation (QE.)  Big surprise, but the dollar is plunging -- even as a House bill is introduced to strip the Fed of half its mandate (the stimulation half) and transform it into an inflation fighter/dollar protector only.

In Williams' back yard, Stockton, CA is mulling bankruptcy.  This city of 300,000 souls is California's 13th largest and a hub of the Central Valley's agricultural activity.  From 1998 to 2005, real estate values tripled.  Since then, they've crashed so badly that Forbes considers Stockton America's "most miserable city." Official unemployment stands at 18.4%, and the crime rate (2009) earned Stockton the distinction of being America's 5th most dangerous city.  Oddly enough, an $18 million cut to the police department budget hasn't helped.

If Williams has his way, the Fed will buy up even more MBS than it already has in Operation Twist.  It will drive down mortgage rates to the point where buyers will show up in droves, bidding up real estate and saving the economy.  The fly in the ointment, of course, is that lower interest rates mean a lower dollar.  A lower dollar means higher prices for such luxuries as gas for the Family Truckster (CL topped 109 a few minutes ago.)

Will the thousands of foreclosed-on families in Stockton (the highest foreclosure rate in the US) jump back in the market if mortgage rates come down 50 bps?  100 bps?  Will banks suddenly relax their underwriting criteria?  Will cities like Stockton, operating at huge budget deficits thanks, in part, to a mismatch between property taxes and profligate spending, suddenly wake from their financial comas?

As Bullard himself said: "central bankers are having difficulty crafting policy in this recession and subsequent recovery because this is the first in which debt levels were too high."  Do ya' think?  These bozos are caught between a rock and a hard place that they, themselves, erected.  Once the debt genie is out of the bottle, he's very difficult to stuff back in.  The only solution, as Stockton is learning the hard way, is to reduce the debt to the point where it's consistent with the ability of the underlying asset (the city) to service it.

Whether you're Stockton, Vallejo, Greece, Portugal or the good ol' US of A, taking on more debt won't fix the problem of too much debt.  At some point, the lenders who made all those stupid loans are going to have to face the fact that they made some very bad decisions.  They'll have to accept the inevitable and book the losses that are already hiding in their phoney baloney balance sheets.

It will be hard.  It will be painful.  Most banks, thanks to their servants at the Fed, will survive.  Homeowners, taxpayers and investors will get slammed.  But, hey, with the Dow over 13,000, why should we worry?

Are We There Yet? -- February 24, 2012

UPDATE:  1:15 PM

AAPL hit the (presumed) Bat target and has paused around 522.  If it holds, look for the downturn to resume.  If not, then the new target is 529.25.

Meanwhile, FactSet reports that, absent AAPL and AIG, last quarter's S&P 500 earnings growth would have been 1.1% rather than the 5.9% reported thus far.   Wow.

UPDATE:  10:40 AM

Meanwhile, the dollar continues to slump, dropping through key support -- reportedly in response to expected additional QE (despite protestations to the contrary by various Fed gov's.)  It's dropped below its Feb 9 low, but is looking very oversold in the short run.

If it can't remain above 78.43, I think we're looking at a drop to the 1.272 of 77.938 or even the 1.618 at 77.311, right next to the SMA 200 at 77.275 and a pretty clear channel line.


I'm hearing this grating refrain a lot lately.  Besides friends, family, clients...I'm asking it of myself, staring into the mirror after a market like yesterday's when time seems to stand still.

One of the indicators I've been watching is AAPL.  A thousand shares in 1997 would have bought you a used Aerostar van.  A thousand shares today would buy you a brand new 56' Beneteau.  AAPL is a leader amongst increasingly narrow leadership -- a bell cow among lemmings.  As AAPL rumbles to new highs, bulls party like it's 1999.  But, when AAPL stumbles, it takes the bulls down a notch -- sows a few seeds of doubt.

This morning, AAPL is flirting with the .886 of what might be a Bat pattern.  We talked a few days ago [see: Just Do It] about AAPL's run-in with the trend line from 1994, negative divergence, the Crab within a Crab pattern, etc.  Since the Feb 15 high, however, our attention has been on whether it was capable of making a new high.

For one thing, the smaller of the two Crabs has a 529.25 target that we didn't quite reach (we came up 3 pts short.)  But, the reversal to 486 off the 526 high was impressive enough that we didn't care all that much at the time.  Now, as SPX is inching back towards 1370, I find myself caring.

We've retraced nearly 88.6% of that 526 - 486 drop.  Regular readers will recognize .886 as a Fib number associated with Bat patterns.  They're set up by Point B's at less than a .618 retrace of the XA leg.  In this case, our Point B was right around the .500 level, so there's a possibility it's a Bat.

The other alternative, however, is a Crab pattern -- which features a Point B up to the .886 retracement.  The difference is in the outcome.  Bats reverse course at the .886.  Crabs go on and extend -- typically to the 1.618 level, but sometimes further (2.0, 2.24, 2.618, etc.)

One way to play a suspected Bat is to short just prior to the Point D, with a stop just beyond -- in case it turns into a Crab.  The other imperative is to watch other technical indicators for evidence of a turn.  In the case of AAPL, we have a pretty impressive TL on the 60-min RSI that suggests 521.86 will be the end of the retrace.  But, I'd put a stop just above 527 just in case.

We got up to 521.10 this morning -- close enough, in my book for the pattern to be considered complete.  But, I'd want to see a sell off before considering it done.  SPX has exactly matched its intra-day high from Feb 21 of 1367.76, and seems to be thinking about a run higher.  Whichever path it takes, it'll be easier if AAPL leads the way.

Stay tuned.

Thursday, February 23, 2012

Charts I'm Watching: February 23, 2012


SPX just completed a little inverse H&S pattern that points toward 1372 -- the same level as the inverse H&S and just above the May 1370.58 high.  I don't know whether we'll exceed 1370 or not, but it's a watershed mark for investors -- especially those who care about Elliott Wave theory.

This morning's attempt at a sell off had no juice behind it, and the bottom of the rising wedge held once again.  Hitting 1372 would take us back to the upper bound of the rising wedge.  And, the beat goes on...

VIX is off 1 pt as of this writing, taking prices as far south on the falling wedge as possible with re-entry.  On the other hand, there's a TL on the RSI that supports the idea of a bounce.  And, divergence is positive on both the daily and the hourly charts.

SBUX trying to rally, but the 60 min channel is holding so far. 

The problem is the daily RSI TL, which looks like it's not ready to break just yet.

I'm closing the rest of my position for a slight loss and will try to reenter on the back test around 49.


Re XRT, off the cuff I think the magic number is 64.44.  There are overlapping Crab patterns that both point to the same price at their 1.618 extensions, and the rising wedge has plenty of room to accommodate it.  The RSI and MACD would argue for a turn here, so maybe we see a dip along the way (59.96 @ 1.272?) to set up some negative divergence for the final push.

Wednesday, February 22, 2012

Just Do It -- February 22, 2012


NDX is still stuck at the apex of its rising wedge.  Looks very vulnerable here, with an RSI TL tag and MACD rolling over to boot.

A lot has been written about AAPL, and its ability to bounce back above its recent highs.  Remember, we saw its reversal coming a mile (well, 36 points) away [see Feb 11: More Crabapples.]

The stock had poked up above a trend line that extended back to 1994 (log scale), was neck deep in a rising wedge and was flashing very strong negative divergence.

Best of all, it was completing a Crab within a Crab pattern - one of my favorite short setups.  Here's the chart from Feb 11 showing the trend line that, if broken, would result in a Crab completion at 529.

The rest, as they say, is history.  AAPL got within 3 points of our target, then fell 40 points to 486 -- leaving a very bearish looking topping candle in its wake.

Since then, it's retraced about 78.6 of its losses; and, most financial writers are calling for new highs.  While anything's possible for this amazing company, there's still a good case for further declines.

For one, rising wedges like touches on both boundaries -- and the lower bound is down there around 415 feeling very neglected.  Second, Crab patterns are wont to retrace .618 of their XA moves, which in this case would be to around 426.  And, last, AAPL is running into trouble with respect to its RSI chart.

Tags on the yellow and the red RSI trend lines have marked some pretty significant sell offs.  While 40 points is nothing to sneeze at, it doesn't compare percentage-wise to some previous tags (e.g. 12.6% in July 2011, 9.5% in Sep 2011, 16.1% in Oct 2011 and 27% in Apr 2010.)

The yellow TL, in particular, exhibits some pretty massive negative divergence.   Back in October 09, when that TL originated, AAPL was hovering around $200/share. 

On the hourly chart, AAPL appears to be back testing the yellow, dashed RSI trend line.  Unless the bottom falls out, it will likely complete a little Bat pattern -- tagging the .886 Fib at 521.77 at about the same time it runs into overhead resistance from that red, dashed TL.

From there, we could see a continued decline to the lower bound of the rising wedge for a 15-20% decline from recent highs -- a plunge that would likely accompany (if not precipitate) a general market decline.

Stay iTuned.

8:15 PM: This just in...check out the interesting post over at Zerohedge re the largest hedge fund holdings.  AAPL comes in as the most crowded trade in the bunch. 

UPDATE:  12:30 PM

Right on schedule, the bounce we talked about a bit ago (1355.53 vs 1355.87, oh well...)

The 60-min RSI has tagged a trend line that could resist any further downside.  Decision time.

The daily chart RSI shows the back test of the previously broken trend line (in yellow) and the establishment of a new line (red) we need to break in order to confirm a downward break of the corresponding rising wedge.

Note:  got stopped out on my remaining gold short position (for roughly a break-even) since prices have moved beyond the back test of the recently broken channel.   I'm looking at 1800 as a likely re-entry point.

1802.70 is the 1.618 of the developing Crab pattern and should result in another touch of the fan line that brought the last reversal.  I'll be especially interested if we see negative divergence continue to develop on the 60-min chart.

SBUX is rallying after a nice 5-day sell off from its rising wedge break.  Judging from the 60-min RSI, it should reverse here and resume its decline.  My target is 47.40, or a tag of the lower RSI TL, whichever comes first.

I still have half my original position left, and will let it ride unless we break the downward sloping TL on the RSI -- probably around 48.35.

I've been tempted to blow out MSFT shorts, but until it can break the Apr 23 2010 high (31.58) and/or overcome the neg divergence, I'll hang in there.

It hit 31.68 intra-day today, but reversed off that to close down .54% at 31.27 -- so far, a triple top that's failed to keep up with S&P 500 or NDX.

Among other high-flyers, GOOG is tracing out a H&S pattern in the wee small hours of its rising wedge.  A break below 565 could see it revisit its June 2011 lows of 480.


Don't you just love waiting?  After a prolonged melt up like we've had the past two months (feels like six), we're all more than ready for a turn.  Even the bulls are getting antsy.

As we discussed yesterday, there are multiple risks to the bull case immediately overhead.  In the meantime, we completed a little Crab pattern on Monday that should see SPX back down to 1348 or so (.618 of the XA distance.)   But, watch out for at least a pause at 1355.87 -- the wedge lower boundary and horizontal support off the Feb 15 high.  Depending on selling volume, the decline could reverse there and go on to tackle some of the overhead targets.

A decline to 1348 would be significant in itself, but of more significance is that it'll take SPX below the rising wedge that's formed over the past three months.  This wedge has been broken before, and has handled it by widening the original path.  Since it's been about as trustworthy as a central banker, we'll watch this one very carefully.

More later.

Tuesday, February 21, 2012

Charts I'm Watching: February 21, 2012

UPDATE:  1:50 PM

SPX faces a gauntlet of overhead challenges, seen here on the 60-min chart:
Previous High:             1370.58
Inverse H&S:               1372.00
Butterfly 1.618:            1375.47
Gartley (2007) .786:     1381.50
Rising Wedge Apex:    1392.23

RUT Bat and Crab pattern highs continue to hold.

NDX, like just about every other index, spent the past few days churning.  Its RSI, also like just about everything else I'm watching, is back testing a broken trend line and is beginning to show negative divergence on the daily chart.


At long last, the Greek deal is done.  But, there's lots of hair on the deal, and the market is rightly unimpressed with the futures up a mere 3 points at this writing.

The melt up has the potential to tack on another 12 points in the eminis -- with a 1376.85 Butterfly pattern completion up ahead.  This is a smidge higher than the May 1373.50 high, so it has the ability to rewrite a lot of Elliott Wave history.

It also roughly coincides with the most generous rising wedge I can draw -- not to mention the inverse H&S pattern.  First, the big picture:

And, a little closer look:

The rising wedge formed with the fan line from Mar 09 is obvious (though I never thought it would grow to include the Oct 27 aberration.)  It also has a lot of open space near its upper bound, making it look a bit hinky.

Drawing a tighter upper bound (purple line) looks a little better, but it also looks a little less ominous.  So, pick your poison.  I think the Butterfly will spell a reversal, especially given that it's in such close proximity to the previous high.

Just like SPX, the eminis didn't quite reach their Gartley target at the .786 Fib level of 1389.66 back in May.  If, for whatever reason, we should overshoot the double top at 1373.5 or the Butterfly at 1376.85, then the original Gartley level should produce a strong reversal.

The corresponding values for SPX are shown in the chart below:

Note that they're a little more compressed in SPX, and that we're already within striking distance of any of the three -- close enough, in fact, that this rally could fizzle at any time. 

Go back and study 2007.  Remember the 90's bull market finally topped out at 1552.87 in March of 2000.  And, though there were plenty of reasons for the market not to make it back there after plunging to 768, by October 2007 it came back to 1576.09 -- 23 points higher than in 2000.

Then, as now, the majority of analysts saw besting the old high as a clear sign of higher prices to come.  Of course, we ended up with a lower low, shedding 58% in the next 17 months.

What I'm trying to say is, the bear case is not dashed if we exceed 1370.  We have two other very strong causes for a reversal waiting in the wings.  And, the commonly accepted EW count can be dead wrong without it meaning we should ignore the crumbling global economic picture, not to mention all these bearish chart patterns, and suddenly turn bullish.

More later.