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The Bullish 5-0 Pattern

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1The Bullish 5-0 Pattern Empty The Bullish 5-0 Pattern Sun Sep 27, 2015 12:58 pm



The Bullish 5-0 starts at the 0 point, representing an extended down leg to begin the pattern at X. The initial point X acts as the low of this prior substantial decline.

After a quick reactive bounce to the A point, the structure abruptly continues the decline, only to find support slightly past the prior low at X. This is the failed wave 3 or wave 5 – in Elliot Wave terms – that establishes the rest of the structure.

However, the important limits from the Harmonic Trading perspective requires that this X, A extension be at least a 1.13 but not greater than a 1.618. After that impulsive failed wave is established, the BC leg rallies to at least a 1.618 extension of the AB length but it does not exceed 2.24.

Again, this tight range of 1.618-2.24 is a defining element of the structure. If the 1.618 limit is not reached, the structure is not a valid 5-0.
Bullish 5-0 Pattern:
After the BC leg has reversed from that zone, the bullish 50% retracement is measured from the B point to the C point. In addition, the Reciprocal AB=CD is projected from the C point (an equivalent length of the AB leg) to compliment the Potential Reversal Zone (PRZ).

It will take some time to begin to identify this structure but the obvious characteristic is the failed down wave followed by a precise 1.618-2.24 extension. At that point, it is important to calculate the 50% retracement level with the Reciprocal AB=CD and study the price action in the PRZ.

Dow Jones Industrial Average ($INDU): 5-Minute

This intra-day chart of the Dow Jones Industrial Average exemplifies an ideal 5-0 structure. After an extended decline from 9855, the index bounced (A) and then declined a bit further taking out the prior low (X) in an intra-day shake out to the 1.13 extension, before rallying in the mid-afternoon to the C point.
Dow Jones Industrial Average ($INDU): 5-Minute:
After rolling over at the 2.0 extension, the 5-0 was set up with the 50% retracement at 9838 and the Reciprocal AB=CD at 9839. The index reversed sharply after exceeding this area slightly.

Millennium Pharmaceutical (MLMN): Weekly

This chart of Millennium Pharmaceutical demonstrates the effectiveness of the pattern in longer-term situations. After declining steadily in through 2002, the stock completed a failed down wave that nominally took out the prior low in early 2003 before rallying sharply to the 2.0 projection of the AB leg.
Millennium Pharmaceutical (MLMN): Weekly:
The stock rolled over to retest the 50% level before resuming the up trend. The Reciprocal AB=CD complimented the 50% retracement just under the $12 level, defining a precise area between 11.50-12.30 to buy the stock.

Standard and Poor’s 500 June 2004 Mini-Contract(ES_M4): 60-Minute

This chart of the ES was illustrated in advance. The structure was quite distinct and the 50% retracement was calculated at 1113. In addition, the Reciprocal Bullish AB=CD was projected to complete in the same exact area.
Standard and Poor’s 500 June 2004 Mini-Contract(ES_M4): 60-Minute:
This 60-minute chart exemplifies the ideal structure for the 5-0, especially with the sharp reversal at the 2.0 projection (red line). This pattern formed over the course of the prior week. Like a magnet, the price action steadily declined to test this support. The following chart shows the price action, as the ES approached the Potential Reversal zone (PRZ) at 1113.
Potential Reversal zone (PRZ) :
The black line represents the Bullish Reciprocal AB=CD completion point and it converges at the same level as the 50% retracement. After a sharp decline into the PRZ, the price action was able to stabilize.
ES reversed :
After exceeding the 1113 level slightly, the ES reversed sharply within a brief time following the initial test. This is an excellent example that truly reveals the ideal price action of a valid Bullish 5-0. The structure was distinct, the alignment of Fibonacci numbers was satisfactory and the price action reversed in the zone.

Although it will take time to identify these situations, 5-0 opportunities like these occur frequently in the financial markets.

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