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59 This enlarged chart shows the price action in the potential reversal zone. Clearly, the stock could not rally through this area and broke down sharply within days after completing the reversal. 1.27AB=CD @ 1361/4 1.618BC@ 1351/32 .786XA® 134 9/16 AB=CD @ 132 7/8 IBM (IBM): DAILY ACTION IN THE POTENTIAL REVERSAL ZONE 138 136 134 132 130 128 126 124 122 120 113 VoluBie i 0BigChart5.Wil1 24 25 26 27 30 31 Sep 2 3 7 8 9 13 14 15 16 17 20 21 22 23 24 27 28 2? 30 When such a clear pattem develops after an amazing rally like this one, you must realize that a significant opportunity exists. The Gartley could not have been any clearer. Even if you waited for the reversal to be confirmed, the set-up identified a great area to either take profits or get short.
The following daily chart of BMC Software shows a nice example of a bearish Gartley after a strong rally. The stock doubled in the year before the reversal and then topped out at 60 1/4. After initially reversing and declining to a "panic" low at 34 7/8, the stock tried to rally. It completed the bearish Gartley and reversed on the day it hit the .786 retracement of XA at 54 13/16. BMCS reversed at 56 7/16 and sold off sharply during the following several months. BMC SOFTWARE (BMCS): DAILY BEARISH GARTLEY AFTER STRONG RALLY ©BigCharts.com 4D98FM fiMJ JflS0HD99FM fl Many ofthese Gartley set-ups will appear during extreme market moves. It is very common for these set-ups to be defined very clearly with nice AB=CD pattems. Therefore, when these set-ups materialize after a major price move, it is important to realize that these are highly probable set-ups.
Gartley Summary The Gartley 222 is a fantastic pattem that occurs very firequently. In fact, it is probably the most prevalent of all of the pattems. The .618 retracement of the XA leg is the most important price leg of the pattem for several reasons. When point reverses at the .618 of XA, the eventual projection will converge with the other key calculations, comprising the potential reversal zone. Specifically, the .786 of XA and the AB=CD will complete in this area. The key in determining a valid pattem is gauging the price action at the convergence of the .786 of XA and the completion of the AB=CD. It is important to respect any waming signs that materialize in the potential reversal zone and closely examine the following price action after the stock hits this area. In my opinion, I have observed buhish pattems yielding more significant reversals than bearish patterns. This may be due to the fact that the entire stock market has had a predominantly bullish bias for the past two decades. But, bearish Gartley pattems are significant reversal indicators that must be respected. I suggest that you study the examples presented in this chapter and research the pattern in other stocks. Valid reversals that result from this pattem do provide excellent opportunities for profit.
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