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71

It is important to note tliat tlie stock reversed on the same day it hit the 1.27 projection. Ahhough the price action was somewhat extreme on this day, the stock did indicate that the harmonic area was yielding a valid reversal. Ive included the following enlarged candlestick chart of the pattem that clearly shows the stock reversing off the 1.27 projection.

HOME DEPOT (HD):

DAILY PMCE ACTION IN I THE POTENTIAL REVERSAL ZONE

1.27 @ 32 11/16

Volume

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21 22 23 24 25 28 29 30 Oct 2 5 6 7 8 9 12 13 14 15 16 19 20 21 22 23 26

45 44 43 42 41 40 39 33 37 36 35 34 33 32 31

As you can see, the stock experienced two waming signs on the day it hit the potential reversal zone. On this day, it gapped down on the open and possessed an extreme price range. Due to these warning signs, you might have waited a day to enter the trade. The next day the stock clearly was heading higher, as the stock closed above the previous days high and closed near the high of the day. Although waiting an extra day would have put you into Home Depot a few points above the low, the pattem still accurately indicated a significant bottom.



Despite tiiese signals, the stock bounced back quite nicely, as it ended the day unchanged and formed a doji price bar. The doji candlestick is an excellent reversal sign after the completion of the Three Drives pattem. In this case, the stock formed doji and possessed a nice bullish continuation, as Home Depot rallied for several days without breaking the prior days low. All of these indications validated the reversal. Therefore, when a Three Drives pattem is observed, you should prepare for a significant reversal. This pattem in Home Depot resulted in a 100% move in the following six months.

The next chart of Gateway Computer shows a very nice geometric pattem. This is another good chart to study because it exemplifies the symmetry of an ideal pattem, as each thmst was almost exactly a month.

GATEWAY COMPUTER (GTW): DAILY BULLISH THREE DRIVES

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42 40 38 % 34 32 SO 28 26 24 22 20 18

10 w

5 E

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9? Feb

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Gateway formed a great bullish Three Drives that reversed at the 1.27 projection. The third drive was projected to complete at 18 7/8. The stock hit 18 1/16 and bounced. Although the stock exceeded the 1.27 slightly, the stock did reverse on the same day it hit this projection.

This is a great example to study because the three drives were very symmetrical. Each drive made its low approximately at the beginning of their respective month. Also, each drive reversed on the same day it hit the 1.27 projection. On the third drive, the stock experienced two waming signs, a price gap and an extreme price range, the day it hit the 1.27 projection. Due to the waming signs, you might have waited to execute your trade. But, the stock formed a very nice hammer after hitting the projection. Furthermore, the following day confirmed the reversal, as the stock finished well above the prior days action. I have included this enlarged candlestick chart that clearly shows the third drive reversing off the 1.27 projection.

gateway (gtw): daily

price action in the potential reversal zone

1.27(0)18 7/8

30 29 28 27 26 25 24 23 22 21 20 19

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23 24 25 28 2? 30 Oct 2 5 6 7 8 9 12 13 14 15 16 19 20 21 22 23 26

Candlestick charts can illustrate reversals in a Three Drives pattem very clearly. In Gateways case, the hammer at the 1.27 projection ofthe third drive provided significant evidence of a valid reversal, despite the waming sign. After completing the pattem, the stock bounced sharply and



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