The importance of patterns
$COMPX - Symmetrical Triangle forming
Introduction
In preparing yesterday’s Gann Master Cycle update I already alerted the premium subscribers for a pattern developing in the US Indices.
Patterns do matter and can tell you a lot about the state of the market we are in at any time. In particular when they repeat over and over again.
W.D. Gann wrote a whole section about patterns in his Stock Market Course. W.d. Gann called this form reading:
“Eighty five per cent of what any of us learn is from what we see. It has been well said, ‘One picture is worth a thousand words’. That is why form reading of various formations at different periods of time is so valuable. The future is but a repetition of the past. The same formation at tops or bottoms or intermediate points at different times indicates the trend of the market. Therefore, when you see the same picture or formation in the market the second and third time, you know what it means and can determine the trend”. W.D. Gann Stock Market Course.
In the chart below on the Nasdaq Composite you can clearly see we are developing a triple top, and triple bottom formation. Somewhere near the apex the chart formation will breakout.
Although there is a lot of white space in this formation, I think this triangle is still valid due to the 1x1 trendlines that encapsulate the highs and lows. The valid trendline drawn in above chart are 1x1 CD valid trendlines so I know at these lines price and time are in balance along the line from the point they originate. In this post am not necessarily looking at the form or pattern that W.D. Gann described as triple tops and bottoms but more to the definition of Thomas N. Bulkowski.
Some 20 years ago I was asked by a fellow trader to review his draft work on chart patterns. Thomas did an excellent job of analysing all chart patterns and their success rate or failure rate.
In the above chart you can see that there is not only a probable triangle forming but also a possible Head and Shoulders (H&S) pattern and even a H&S smaller pattern as Gann referred too in above quote when patterns re-occur. One just cannot ignore these patterns.
If this formation is continuing with lower tops and slightly higher bottoms on low volume the breakout is likely to the downside. The statistics mentioned in the chart are from his Thomas N. Bulkowski book: Encyclopedia of Chart Patterns, First Edition 2000.
Accumulation and distribution will take time before the ‘big boys’ will throw the towel in the ring. Probably the above triangle pattern shows how accumulation and distribution will take place.
A larger target can be calculated using the first A-B swing, and the same swing from point B to the downside. That will take time. First we need to make a lower top “C”. Likely time for point “C” forming could be a Fibonacci 144 bars (Square of twelve) from March 29th 2022 high, and a Fibonacci 89 bars low June 16th 2022, which is also a Fibonacci 55 bars from March 29th high. A very nice symmetrical form/pattern and the subsequent Fibonacci numbers could signal a point in time for a possible change in trend. This point in time is pretty much aligned with the well known Gann ‘Panic’ Cycle.
The paid subscribers can read further from here on the above analysis in more detail and how this may align with the Gann Panic’’ cycle. Also, I will elaborate on what the probable initial targets based on the patterns are, and @ which level this pattern may invalidate and within what range the $COMPX may probable trade to complete this pattern.
This analysis is intended for general informational & educational purposes only. Hypothetical or simulated performance based on past cycles have many limitations. Cycles can contract, extend and invert. Anomalies can occur. Hence, past performance is no guarantee for the future. No advice. Read our disclaimer.