In last week's article I showed how we were holding a Gartley support pattern on the ES contract and identified key resistance which would have to be overcome in order for that pattern to play out to a new daily swing high. An identical pattern was in place on the YM contract. Let's step back a few days on this daily chart to examine the parameters of the support and resistance:

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Very often we see an ABCD correction when coming off of a major target. The 1.618 target extension at the major high was derived from the February high to the March low. Once that was met, we knew that the swing was extended and due for a pullback. The first attempt at a rally failed at the .618 retracement resistance on May 11th. By projecting target extensions from the May 5th low to the May 11th high, we could see that the downside target zone (between 1.272 to 1.618) came in at the bold green levels shown holding as support here. A price expansion of the May 2nd high to the May 5th low projected from the May 11th high further reinforced this area, and the addition of a major .618 retracement showed this as a Gartley support zone; a stronger version of the standard ABCD correction.

In order for that pattern to be proven as a corrective move instead of a new downtrend, price would have had to break above the price expansion of the May 5th low to the May 11th high projected upward from the May 17th low established within the Gartley support zone. Here’s what happened next:

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That key price projection at 12623 held, letting us know that the rhythm of the downside move was intact and there would be no follow through on the Gartley support pattern. The next downside targets were projected from the May 17th low to the May 19th high, and you can see that we’re currently holding within that next target zone. The most important support here is the .786 level at 12215. That’s the key retracement of the April 18th low to the major high established on May 2nd. A close below that level would call the 11808 target into play, making this a major decision point on whether the rally is going to resume immediately or if there’s significantly more downside in store.

For more from Mark including his “Chart of the Day”, visit MJBraun.net.