Book: Kane Trading on: A Totally New 5-Point Pattern
November 21, 2004 Commentary (weekend edition)-
Today I'm going to show a setup that formed in GS. This is a very interesting example because it had more than one pattern, interesting 'context' aspects, and median line synergies. I want to point out right off, though, that this example could almost be a full study unto itself, it has so much. I can only skim the highlights in a commentary like this.
I'll start with the pattern on the daily chart.

Chart 1
GS formed this great looking 5-point pattern. One problem for me is that I have no 'context' at this point at all. I need to move up to a weekly chart and see what that shows me.

Chart 2
Now, given that I can only show so many charts in this venue, I have to combine some steps (and even at that, I am only showing a few aspects as it is). I would be looking at this first without the trendline that I have drawn on the chart.
My first impression is that I don't even want to think about using that pattern to call the end to that strong uptrend. This looks like the start of a possible wave 5 up, where we may be in wave 3 of 5 now. This also aligns with a lot of the broader market wave counts. Then I put the trendline on the chart.
Now I see a possible trade premise for this. A lot of people may be looking at this trendline. The pattern is coming together right at the line. This may be enough 'context' to expect at least a tradable reaction for me off that area. This is one where I would start watching the price action on the lower timeframe for additional clues.
Now, before we move on, is this all the assessment I did? No, not even close. I am really harping on this today because I am feeling like it is getting harder and harder to really cover an example in this commentary with any degree of thoroughness. I can only show some of the things I do, and the detail is just not very full because this commentary can only be so long.
My methodology is written up in about sixteen hundred pages. I can't explain the entire process for any given example in this short commentary. I'm mentioning this now because it is getting harder for me to write commentaries knowing I can only show some limited aspects. I feel like I'm doing a 'sound bite' for a news program. I feel like the 'context' and detail of the overall picture is getting skimmed over.
Well, let's move on. I noticed something very interesting setting up on the 15-minute chart shortly after GS put in what might be the reversal point.

Chart 3
Here's a scenario where another, smaller pattern is setting up that can act as a trigger for the much larger pattern. At this point I also had a median line and parallels on the chart. Let me add those.

Chart 4
I frequently use median lines in conjunction with all my Fibonacci and pattern analysis. I find them to be among the most synergistic with my 'usual' techniques. And of course I would be doing my normal groupings and 'harmonicity' analysis in here, it's just that I can only show so much. Let's take a look at what happened from here.

Chart 5
I showed the .618 retracement area where the pattern completed. This is only one number of several that I would use here, but I am showing it to point out how the pattern came together right at the upper median line parallel and the .618 retracement area, all within a few cents. And this was all put together to 'test' a much larger pattern completion right at a major trendline.
GS dropped like a rock off the area, and went straight to the lower median line parallel, which overlapped with a 1.618 external retracement of the up move shown on this chart. On another software program on a different timeframe the penetration of the lower line was much less significant. Each program, data set, and timeframe will yield slightly different lines. My original set reversed much closer to the line than this chart shows. Regardless, we are still talking pennies here, and the original setup got its 'context' from the weekly chart.
This is just a classic example of the use of Fibonacci, patterns, 'context', and median lines together to form a trade premise. This is the type of setup I am always on the lookout for. It doesn't get too much clearer than this.
Let me mention a few more quick things here before I close. I am still managing the QLGC play, and things are happening. Follow up on that one for some good study aspects. Gold is going wild, as expected, and many things have happened that I would like to have covered in here. It is issues like this that make me wonder if I should have a subscriber section.
And on the gold front, I am very excited about the launch of the new gold EFT, trading under the ticker symbol GLD. If this thing gets the action I suspect it will, I will be really working it extensively. It offers the opportunity for stock traders to play gold virtually directly. I think that many stock only traders want to be involved with gold, and if so, this thing may really get liquid. It adds one more way to play into the mix.
Lastly, there was a really great reaction to a 4-Point Continuation Pattern in ATG. A reader pointed this one out to me, ahead of the fact. This one has various 'context' aspects worthy of discussion, and a really amazing correlation between a stock issuance price and the 4-Point completion point (they turned out to be identical). I may cover this in a future commentary. I would have done it today, but the GS was 'in the works' for quite awhile, and I had to cover that one today.
The next commentary will be the mid-week edition, posted by Wednesday evening.
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