Pattern-Rich Environment

The Dow Diamonds (DIA | Quote | Chart | News | PowerRating) have played out as planned so far (see Sept. 17 column). After the neckline of the head-and-shoulders pattern was broken, this ETF has taken a nice ride down, falling from 82.75 around the neckline down to a low today of 79.15. That translates to over 350 points on the Dow Jones. So for meaningful purposes, this head-and-shoulders pattern has done its job. Now I'm shifting gears to a pattern that is coming to the forefront:

1. DIA is now forming a two-step pattern into a Fibonacci price support zone from 77.39 - 79.18.
2. This two-step pattern is actually a Bullish Gartley Pattern. This is basically a two-step pattern with specific Fibonacci ratios for each section of the pattern.
3. I also have three Fibonacci time cycles showing Sept. 23 - 24 for a time frame that this ETF could put in a low.
4. So, now with a bullish pattern, Fibonacci price support, and time cycles calling for a low to be put in, I have to start considering long trades against this support zone.
5. If I do get a trigger to go long against this zone, my initial stop would be just below 77.39.
6. The other side of this setup is if DIA keeps going down. Think about this…if DIA trades down below 77.39, it will be violating price support, time cycles, and a textbook pattern. What does that say to you? I'll tell you what it says to me…this market is weak!
7. Bottom line: listen to what the market does against this very critical price support zone. Be ready to act on both sides.

Finally, I want to update you on our Beazer Homes (BZH | Quote | Chart | News | PowerRating) set up. If you recall from the Sept. 12 column, (BZH | Quote | Chart | News | PowerRating) was in "Reflection" mode. It was in a countertrend rally that was up 19 points. That countertrend rally basically was a mirror image "Reflection" of the previous rally which was also 19 points. Well, (BZH) hit a key Fibonacci price resistance zone at 73.30 as it was "Reflecting" and six trading days later it's now trading around $63. In our chat room we have just lightened our position and took some profits in BZH and moved our stop down to at least breakeven to reduce/eliminate risk in this trade. We are hitting a price support zone as we speak. If this zone is cleared to the downside, then we have a good chance to hit the final objective on this trade down around 49.06. Critical point here is that we did take partial profits and moved our stop down. Money management is key!

Good night!

Derrik