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Triple Bottom Reversal

S&P 500 Annotated

Back in this post on September 23rd, after the market bottomed for the third time, I said that the pattern we wanted to watch for was called a Triple Bottom Reversal. In general, this pattern historically means that if you are able bounce off a significant support level and move higher to the point where you break through a previous resistance, you can generally anticipate a continuation of the move even higher.

From a mathematical standpoint, you calculate it as a move of 50% of the distance from the bounce point to the point of break through of resistance. The bounce point occurred at 1100 on the S&P Index (see above) and the resistance level was at 1230, so 1230-1100 = 120 X 50% = 60 S&P points above 1230, giving a 1290 target for the current move higher, or about under 5% upside.

How reliable is this historic pattern? Reliable enough for it to be recognized as a pattern. However, for those of you who have been readers here for a while know about my “Rule of 3″ which says that for any move to be valid, it has to stay above resistance (or below support) for either 3 days or 3% for it to be a valid replication of a pattern. Today is the first day we’ve broken above 1230 and the market is not yet closed.

Earnings have been positive, but there have certainly been some negative announcements – for every blockbuster Intel announcement, we have had a lackluster Apple announcement. Interesting times. But, earnings don’t seem to be the catalyst for market action right now – its geopolitical events, particularly of the European kind.

The big move today is likely due to hope that France and Germany will come to some sort of agreement on Greece this weekend. If they don’t, then the market will need some other good news to keep the move above 1230 alive for 3 days if the rescue of Greece turns out to be a fantasy.