The broadening top pattern that has formed on the Australian Stock index called the “Spy” is a rare pattern. The pattern is discussed in both “Trade what you see” (Leslie Jouflas) and “Profits in the Stock Market” (H.M. Gartley).  In discussing the pattern Gartley says  “…Fluctuations grow increasingly sharp as profit-glutted speculators grow more reckless in pushing their favorites. Quite possibly,  well informed selling is completed chiefly in the early part of the broadening formation, and the later stages find (probably less experienced) trading their favorite stocks in wild swings which attract increasing less demand”.  This is a good explanation of the psychology that is going on within this pattern and this quote also speaks to the “rotation” of professionals getting out of positions that are being absorbed by novice investors. The weekly chart of the Spy shows that 5 point required to complete the pattern and the subsequent breakout to the downside this past trading week.

Kevin Riordan

The SP Harmonics chart 1 below shows the potential for a third correction down of equal length swings. The question mark just asks the question will this repeat?
The market late in the day traded to the downside making lows late in the day and found support at the low of the third line and equal length shown on SP Harmonic chart 2.
Traders can learn to use harmonics such as these in trading for several purposes; Trade entry, stop loss placement and profit targets.
You can read more about Harmonics in ‘Trade What You See - How to Profit from Pattern Recognition’, by Larry Pesavento and Leslie Jouflas, Wiley and Sons, 2007.

SP 500 Emini Harmonics 1

SP 500 Emini Harmonics Chart 2

SP 500 Emini 120 min double head and shoulder pattern

The chart below is a SP 500 120 min chart that has formed a double left and double right shoulder, head and shoulder pattern. H.M. Gartley from his 1935 classic book, ‘Profits in the Stock Market’, described this variation of the head and shoulder pattern. This of course is a coiling pattern, where the market tests up and down and eventually breaks out. The downside break is around the 1177 area.