*************** PEBBLEWRITER.COM IS LIVE! TO SIGN UP, CLICK HERE ***************

Thursday, March 29, 2012

The Big Picture in DJIA: March 29, 2012

Big Picture: 

These are the channels that make the most sense to me at the present time.  The purple TLs are all parallel to the one connecting the two tops, and the red TLs are parallel to the ones connecting the bottoms.

As most investors know, the Dow has outpaced SPX, retracing about 87% of its drop from Oct '07 to Mar '09 compared to SPX's 82.7%.  There was a bigger divergence, however, with the 2007 top.  DJI completed either a Crab and/or Butterfly pattern -- extending nearly to the 1.618 of its drop, while SPX formed a double top. [see: Crabs and Butterflies Explained.]

Why the ambivalence?  DJI put in two potential Point B's.  One was at the .382 (marked A) which would indicate both Bat or Crab possibilities.  Remember, Bats complete at the .886 and Crabs to 1.618 or beyond. 

But the next turn came at the .786, which is a Fib associated with Butterfly Point B's.  Because Butterflies complete at either the 1.272 or 1.618 extension, this possibility didn't really change much -- just alerted us to the possibility that the 1.272 was also a possibility.  DJI barely paused at the .886, so the Bat was off the table and we could look forward to a double-top or beyond.

DJI got a good reversal near the previous high, and for a while the double-top looked like a possibility.  But, a good bounce at the .786 sent it back above the the top.  At this point, the 1.272 was a real magnet -- especially since we'd had a Point B at and a back test of the .786 Fib level.  Sure enough, 2,200 points later we got the 1.272 completion of the Butterfly and still had enough gas in the tank for a run at the 1.618 for the Crab to count as well -- coming in just 366 points shy.

Medium Close-Up:

DJIA came within 28 points of completing a Bat pattern (an 88.6% retracement of the Oct ’07 – Mar ’09 crash) on the 16th.  To be that close, after a 7,729 point drop and 6,719 point rise — is probably close enough (it’s about 87%).  We haven’t gone higher since (and, in fact, had retraced .886 of the subsequent drop as of yesterday's close for a small Bat not shown on the charts.)


DJIA clearly broke the small yellow rising wedge this morning, but we've been faked out a few times in this non-stop meltup.   Stay alert to the possibility of a broadening of the wedge.

DJIA is almost to the .886 of the smaller rising wedge in both time (Apr 9) and price (13,357).  The Butterfly Pattern completes at 13,548, but that's some distance away from the Bat Pattern off the 2007 high whose .886 is at 13,317.

It’s entirely possible we’ll get both — with a reversal at 13,317 in the coming days (if we haven’t already seen it) followed by a break of the small rising wedge and subsequent back test to complete the Butterfly at 13,548.   One key is 13,000, because a break would turn this morning's dip into something bigger; a hold would permit the just-completed small Bat (from Mar 16) to extend into a Crab at 13,465.

1 comment:

  1. Great work PW!!!.....Interesting that oil took out the March 6th low today and never took out its' prior high much like the DOW failed to do..... WTI and stocks have seemed to trade alike for someone time. Tim Wood of, has been saying for weeks to watch oil as a possible first sign of a potential bigger correction to come. Canary in the coal mine?........ We will see