This example truly illustrates how a stock can reverse after hitting a harmonic area, despite strong price action. In Microsofts case, the stock had been rallying sharply in the few weeks before the reversal. Also, the big rally that occurred on the day it hit the AB=CD completion point at 98 3/4 severely challenged the potential reversal zone.

I followed this set-up closely as it materialized. I personally thought that Microsoft was going to blow out this low-100 area and head higher. The price action seemed strong and there were several bullish stories regarding the company in the news. Better-than-expected eamings results, increased Intemet revenues and a favorable court mling painted a strong outlook for the stock. Despite this bullish forecast, the stock found very significant resistance just above the $100 price level.

This is a classic case, where the excessive bullishness could be considered a contrarian indicator ofthe ftiture stock price. In this example, the bearish pattem clearly indicated that the stock should be shorted or sold right around $ 100 a share.

With so much bullish news in the media, you have to ask yourself: "how much better can it get?" I guess this was a situation where the media would say: "buy on the rumor, sell on the fact." I would say that it was a pretty clear selling opportunity because of the incredibly bearish pattern that possessed two harmonic numbers, which converged very close to each other.

The next example on this short-term chart of Home Depot illustrates the bearish AB=CD pattem, as well. The stock rallied in two distinct price moves that were approximately 8 points each. The stock sharply reversed after completing this pattem. Also, the individual price bars were very bearish at the completion of the pattern, indicating that a reversal was intact.

Home Depot lost 7 points in two weeks. Since this is a very short time fi"ame, this set-up would be better suited for day traders looking for a quick move. Again, it is important emphasize that the most critical number in this set-up is where the CD leg equals the AB leg. Although this pattern required secondary Fibonacci numbers to measure the price action, it still was a very harmonic set-up.

This set-up was harmonic because the pattem was almost exact, and the Fibonacci projection of the leg indicated a short-term selling opportunity around 66. The AB leg was 7 7/8 points, while the CD leg was 8 5/16 points. The 2.24 projection of the leg was at 66 1/4. The stock hit 66 5/16 and sold off Clearly, when this stock hit 66, you should have been getting ready to sell.

HOME DEPOT (HD): DAILY

BEAHSH AB=CD

56 54 52

Volume

10

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The next example of Intel is very similar to Microsoft. The stock formed a very distinct pattem that reversed almost exactly off the completion ofthe pattem.

Intel formed a very nice bearish AB=CD pattem. The stock reversed just below $90 a share. In the weeks leading up to the reversal, Intel was rallying sharply. However, the stock experienced substantial resistance after hitting the potential reversal zone. The stock possessed an extreme range on the day it hit the 1.618 projection of at 84 1/4. Respecting this waming signal, you would have waited at least one day before executing the trade. On the day the stock hit the completion target of the AB=CD pattem, it gapped up on the open - another waming signal.

64 62

INTEL ( ): WEEKLY BEARISH AB=CD

90 85 80 75 70 65 60 55

45 40

Volurfie I

Sep Oat Nov Bk 99

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Sep Oct

Although this price action seemed quite strong, the following day could not follow through on the upside. Within a few days, Intel broke down forming lower highs and lower lows. The following enlarged chart shows the price action in the potential reversal zone. Clearly, Intel stalled in this area. Furthermore, the stock formed mostly bearish price bars after topping out just above $89 a share.