Jumping the Creek (by Fujisan)

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This week was totally phenomenal in many ways, and I was overwhelmed by the market reaction.  I guess the market was celebrating the 1st anniversary of the crash 09??

Gartley Pattern Update

First thing first – let me give you an update on my Gartley Pattern.  In my last week's post, as a part of the bullish scenario, I documented as follows:

"Now, someone asked me what would negate this Gartley pattern and here is my answer:  if the market closes above Feb 22's high, then, the market will most likely come to retest the recent high of Jan 19."

As of March 1st, SPY closed above Feb 22's high, and therefore, Gartley pattern is no longer valid and I'm expecting the retest of Jan 19's high.

Jumping the Creek

One of the reasons that I found this week's market movement "phenomenal" is that SPY was breaking above the major trend line as follows:

Here is a close look at the SPY daily.  It's been a known fact that this market has been very "gappy" – i.e., it has a tendency of gapping up or down whenever the market approaches the major resistance area.  This was one of those "jumping the creek" events.

SPY Three Drives Pattern

As illustrated below, the first upside target is 115.94, and if SPY is able to maintain the current upside channel, this could be developed into the "Three Drives Pattern" with the next upside target of 120.15.  At the same time, it could also come back down to fill the gaps before heading higher.  We just need to watch the market closely to see which way to go.  As the OPX (Option Expiration) week typically is a bullish week, my bias is more toward the upside than the downside, which would give more probabilities of completing the three drives pattern.


SPY Bear Call Spread March 116/117

Here is one of the examples for March OPX play.  Once SPY reaches the price target of 115.94, you can sell March 116/117 credit spread as follows:

Risk = $60 (stop at $116.42)
Reward = $300 (exit at $113.40) 
Risk/Reward = 500%
Return on Investment = $300/$580 (max loss)

This trade could possibly be completed in three days (entry on Wednesday, Exit on Friday)

Alternatively, if you believe that SPY expires below the short strike price of $116, you can hold on to your position for a maximum profit of $420.

Three Peaks and Domed House Update

Another reason of the market's phenomenal move this week was the resolution of the "Three Peaks and Domed House" pattern. 

As discussed in my Oct 09 post, the INDU monthly chart is forming the Three Peaks and Domed House" pattern as follows:

Likewise, as discussed in my last week's post, the INDU's daily chart is forming the"Three Peaks and Domed House" pattern as well,  Here is the INDU's daily chart.



Now, watching this week's market price movement, I feel like I found an answer.  If both daily and monthly charts are forming the identical pattern, why can't we expect the same results in both cases? 


EUR/USD Three Drives Pattern

If there is any correlation between the Euro currency and the equity market – which doesn't seem to be the case at this moment, there could be a possible turning point once this pair reaches the other side of the channel and heading south once again.  I'm expecting a possible turning point toward the end of next week as it took 16 trading days of sideway consolidation back in Dec 09.  Does this currency pair trigger a selloff inot the OPX week?  Let's see……. 


Spring has come to Seattle and we see many cherry blossoms.  Have a wonderful weekend, everybody!