This example of Legato illustrates the importance of respecting the warning signs - a price gap, a tail close, or an extreme price range. When you wait one price bar, in this case the next day, the price action will indicate whether or not a reversal will occur. If the stock is going to reverse, you want to see bullish price action that breaks the prior days high. Ideally, the price action should close above the prior days high, although any type ofbullish close is a good sign.

It is important to note that in this example of Legato, the stock did not continue to sell off the day after the extreme price action entered the reversal zone. This is especially significant because on the day it sold off, the stock closed near the low of the day. With such an extreme day down and such a bearish close, you would probably assume that the stock would be heading lower. But, the next moming Legato did not continue to decline. It reversed and rallied 18 points in the following three days.

This chart example shows how Sportsline.com, an Intemet company, formed a terrific bullish Gartley on this hourly chart.

sportsline (spln): hourly

bullish gartley

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One of the reasons I included this chart was because I wanted to relate my personal experience with this set-up. Although the stock did not hit the .786, it did reverse right off the AB=CD. The .786 retracement of XA was around 42 1/2. The AB=CD completed just above 43. The stock hit 43 1/8 and rallied over 10 points in the next two days!

I saw this pattem develop but I was waiting for the .786. The stock never hit it and I missed the move. This is a situation where I had to just let it go. It was a great opportunity but it did not reach my price objective - the .786. Although I was not happy about missing out on the 10 points, I know that there will be even better set-ups in the future!

I saved the next example for last because it is such a harmonic chart. On this weekly chart, Chiron bounced off a potential reversal zone that included five harmonic calculations!

CHIRON (CHIR): WEEKLY BULLISH GARTLEY

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The potential reversal zone converged in an area that was about 3 3/4 points, between 12 1/8 and 14 9/16. The most critical number, the .786 of XA was calculated at 15 3/4. However, there were several other numbers that converged below this area. Another number that complemented the .786 was the 1.27 ofthe leg at 14 9/16.

One of the most harmonic elements of this set-up was the completion of a smaller ab=cd within a larger AB=CD. The larger AB=CD was projected to complete at 12 1/8, while the smaller ab=cd was calculated at 13 13/16. Both of these pattems were projected to complete very close to each other. Also, the 1.618 ofthe be leg complemented this area at 13 1/4. When two AB=CD pattems converge this close together, you must consider that a reversal is highly probable. In this case, Chiron reversed almost exactly after completing the smaller ab==cd.

CHIRON (CHIR): WEEKLY BULLISH GARTLEY PRICE ACTION IN THE POTENTIAL REVERSAL ZONE

1.27 @ 14 9/16

ab=cd@13 13/16 1fi1Rhrf5)13 1/4

.786XA ( ) 15 3/4

Volume

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I have included this enlarged chart of the set-up. As you can see, the stock boimced 8 1 after hitting this area. The reversal was confirmed by the strong breakout that occurred a few days after the stock hit the potential reversal zone. This area yielded a significant bounce, as the stock rallied almost 100% within three months.