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BUY: Target $461.90
A beautiful BUY pattern gave a BUY signal on 9/10/2008. One would have entered a long position at or near the close of 9/11/2008 at a price of about $414.16 . The target price is $461.90. Set your limit order to exit at $461.90 or above. Truly a nice pattern. I wish I could display it on a wickichart. If you want a description of the patterns I am talking about, take a look at http://www.wikinvest.com/image/LUV_BUY.jpg and you should be able to see all the components of the pattern.
But first, to see what the picture looked like on the day of the signal (9/10/08), here is the chart with the last bar being the BUY signal generator (see the red upward triangle below the bar).
Would you have thought of buying GOOG at that point, despite the buy signal? Well, here is what the whole picture looks like:
Here is the analysis: As per the article specified above ( http://www.wikinvest.com/image/LUV_BUY.jpg ), we can see the 4 components of the pattern:
1) We have a downward movement (shown in the red rectangle) from $588.04 to $461.90 followed by:
2) A retracement of exactly 38% on 8/18/08.
3) A resumption of original downward movement from 8/18 until 9/10
4) Then there was a bounce off the $413.75 showing support at that price which is also the 38% extension of the original downward movement shown in the red rectangle. It is that last piece which generated the BUY signal. Based on the rule of the pattern, you have a very high probability that the stock will now reach the target price which is calculated to be the bottom of the red rectangle. That price is $461.90.
We hit our target on 9/19/08! But not only did we hit our target, the high for today was $462.07, only 17 cents over the target price! In fact we opened by gapping up $21.95 from yesterday’s close. The opening price was $461.03, just $0.87 below the target. Isn’t it interesting that on a day when the DOW went up $368.75, GOOG opened up and spent the day going down after hitting its target. This also represents an 11.53% gain in 9 days (or 7 bars) ! And it was all predicted by a pattern! What could make this look even more like a prophetic prediction? How about seeing GOOG go down or sideways for the next few bars? It happens often with these patterns that after hitting their target price, the stock starts going the other way.The beauty of the GOOG pattern is that it is almost TEXTBOOK PERFECT!
And remember, the BUY signal was given on 9/10/08, at a time when GOOG had gone from about $588 to about $415 or a drop of $173 or nearly 30% in just 2 months! would one have been willing at that point to say, "let's buy GOOG, it should go up 11%"?
Another observation is in order. Note how GOOG had been steadily going down starting on 8/18/08.
Of the 17 bars following after 8/15/08 only 3 are green (indicating an up day). In fact on 9/10/08 you could have looked back and seen that the last 8 bars were red, declining bars. Therefore we had quite a downtrend starting on 8/18/08. GOOG went from a high of $510.66 on 8/15/08 to a low of $409.68 on 9/10/08 for a decline of $100.98 or nearly 20%. But as soon as we bounced off the 38% extension level of $413.75, just like magic, we started having nice, green bars representing up days. In fact, the next 6 bars saw 5 upward bars. The only red bar in that sequence was 9/17/08 when the DOW had a 446 point drop.
But the pattern's prediction was correct. Look at how we hit the target perfectly! Having GOOG go over the target by 17 cents when the target is $461.90 represents an overshoot of only 0.04%. I don't know about you, but I find it impressive. Also, look at how cleanly we hit and then bounced off the 38% retracement level during the period of 8/15/08 - 8/18/08. Again, a textbook example of the Jeanty Buy pattern.
And for those who still might think that this is an isolated case. Look at the Jeanty Buy Pattern that generated a BUY signal on 7/21/08 for GOOG. Here is its picture:
Can you see the 4 components of the pattern? Again:
1) A downward movement (red rectangle) from $591.19 to $501.10 or a decline of $90.09 (or 15.23%).
2) Followed by a retracement of, surprise, surprise, nearly 38%. The 38% (to be mathematical exact we look for 38.17%) level is at $535.49. Look at the big green bar on 7/16/08, you will most likely need a magnifying glass to detect the $1.01 by which it overshot the 38% retracement level. (that's just 0.1%). On 7/17/08 we bounce again against that retracement level. This is evidence of resistance at that level.
3) We then resume the downward trend after 7/16/08 until 7/21/08
4) 7/21/08 is when we bounce off the 38% extension level at $466.71 and find support at that level.
All components of the pattern having been shown we get our BUY signal with a target price being the bottom of the red rectangle or $501.10. Assuming the position had been entered at near the closing price of 7/21/08 ($468.80) this could be a potential gain of $32.30 or 6.89%
What happened next? The downward movement was stopped just long enough for GOOG to go hit the target on 8/11/08.
And look at how the target was hit. The target was $501.10 It was reached on 8/11/08 when the high was 508.88 and the close was $500.84. We overshot the target by $7.78 or 1.55% and then closed 26 cents below the target. It is as if we were homing in on the target. We overshoot it and then come back towards it and close just .05% away from it.
A few bars after this, GOOG started going down again forming the next Jeanty pattern which was described earlier in this article.
Would you like to see what the sequence of patterns looked like? Here it is:
You can see how, in the midst of a 30% drop in the stock price of GOOG you could have taken advantage of a 6.89% gain followed later by a 11% gain.
You can also see how the patterns are connected to one another. As one pattern was reaching its end, another had already started.
Now, if only someone could explain the WHY of these patterns :)
And this is the power of technical analysis.
Well, here we are on 9/22/2008 and, surprise of surprise, GOOG is backing off the target after hitting it on 9/19/2008 Here is the picture:
Look at the dramatic drop. Again, look at how well we hit the target and then backed away from it. Tell me this is not beautiful!
It is now October 16, 2008 at 11:22 pm as I add to this article. Google had another buy signal from a Jeanty Buy pattern on October 8. The target price was $380.71. Here is the chart.
Again you can analyze the pattern and see the 4 phases:
1) The downward movement from 8/25/08 to 9/29/08 as the GOOG's price went from $497.00 to $380.71
2) This was then followed by a retracement of 38%. If you look at what the 38% retracement value was computed as you would find the price to be $425.10 on Sept. 30, Goog's high price was $425.08. That is just 2 pennies below the 38% retracement level. That is good enough to count as a bounce off the 38% retracement level
3) There was a resumption of the downward movement.
4) Finally there was a bounce off the 38% extension level on 10/8/08. This created the BUY signal with a target price computed as the bottom of the red rectangle, namely $380.71
What happened after 10/8/08? 3 days later on 10/13/08 Google's high was $381.95! We hit our target and overshot it by $1.24. This is an overshoot of 0.33% only. This would have given you (assuming you bought at the closing price of 10/8/08 of $338.11) a gain of $42.60 or 12.60% in 3 days. After that, GOOG went down for 3 days (as of this writing).
If you want to see the 3 patterns in one chart, here they are:
Tell me this isn't beautiful!
Again, the power of the pattern. Note how Goog has shown 3 of these patterns in just over 3 months.
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