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42

AB=CD@ 8811/16.

1.6 @84 l/4

INTEL (INTC): DAILY

Volune -

PRICE ACTION IN THE POTENTIAL REVERSAL ZONE

SigCharts.cdw

25 24 27 3C 31 2 3 7 6 5 1 S3 M 15 Sfe 17 2& 2{ 22

S7 S6 SS 84 82 81 80 40 30 20 10 0

This situation was very similar to the example of Microsoft because the news in the media was excessively bullish. In this case, Intel was benefiting from higher DRAM prices and increased demand for personal computers. Again, I thought that Intel was going to blow out the potential reversal zone. But, after the stock broke down, I realized the reversal was valid. I bought September 85 puts on the open of trading two days after the reversal and made money.

The next example of GTE shows another clear bearish AB=CD pattem, except it is on a longer time frame. The pattem was very distinct and reversed just above the exact completion of the pattem. The AB leg was almost 24 points - 23 7/8 to be exact. The leg reversed at 46 9/16 (pt.C), falling short of the exact .786 retracement of the AB leg at 45 9/16. Projecting an equivalent move from point C, the potential reversal zone was calculated around 70.



GTE (GTE): WEEKLY

BEARISH AB=CD

7C 65 60 55 50 45

I une

0BigCharts,Mm

fl SON D 98 F fi N J J fi SON 11 99 F H fi II J J

20 15 10 5

i i i

i i i i i

The completion of the AB=CD was also complemented by the 1.27 projection of the leg at 69 3/16. GTE rallied strongly, as it slightly exceeded the exact AB=CD, projected to complete at 70 7/16. Despite the strong price action, the stock reversed at 71 13/16. The reversal was confirmed in the following few weeks, as GTE clearly broke down.

This was a very significant pattem, especially since it was so clear and formed over a year. I would have preferred to see a more symmetrical time sequence for each leg. The AB leg was 23 weeks, while the CD leg was 18 weeks.

01020201023102234848010123020153000223010232894823



Despite this slight discrepancy, the AB=CD pattem clearly gauged the potential reversal zone. It defined a very specific area - around 70 - to sell or short the stock. Since the stock experienced significant difficulty rallying through the potential reversal zone, this price action indicated serious resistance. The following candlestick chart shows the price action in the potential reversal zone.

AB=CD@70 7/16 1.27BC@693/16

GTE (GTE): WEEKLY

BEAmSH AB=CD ACTION IN THE POTENTIAL REVERSAL ZONE

lli.illllliil

72 71 70 69 68 67 66 65 64 63 62 61

As you can see, GTE reversed 8 1 on the week it hit the completion of the AB=CD. The following week also validated the harmonic area as a change in trend, because the stock clearly broke down. Another interesting aspect of this reversal was the large bearish candlestick that formed after the stock hit the AB=CD completion point. Also, GTE could not rally into new highs, and it continually formed bearish price bars. Such price action is critical in gauging the stocks trend and validating the reversal.



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