XLV Bump and Run Pattern + Fibonacci and Clones

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Here is a look at the XLV Healthcare Select Sector SPDR weekly chart. What I see is a Bump and Run pattern nearing the last stage of it's run phase. This particular bump and run has a very steep angle, estimated about 50 to 60 degrees. I believe the pattern is nearing the last stage of the run and is ready to reverse slowly to the previous trend line , which is seen as the black ascending line. The running channel which started at the 39.05 area is still in effect. Once the channel is broken I suspect price to reverse to or near the .50 Fibonacci fan (top ascending green lines).

I also included a clone that was suggested by @nmike. The reference point for this rather large clone is at 35.25 and 20.03. As you can see we briefly touched the peak of the clone for a daily high on May 22, 2013. When you build clones you rely on the .50 horizontal lines to measure smaller clones with the larger clones. These .50 Fibonacci Lines act as support/resistance within the clone.

The next significant support both ascending and horizontal is at 46.63, and meeting the ascending support trend line before June 17th, 2013.

Bump and Run Pattern:

Bump and Run Reversal (BARR) is a reversal pattern that forms after excessive speculation drives prices up too far, too fast.

Lead-in Phase: The first part of the pattern is a lead-in phase that can last 1 month or longer and forms the basis from which to draw the trend line . During this phase, prices advance in an orderly manner and there is no excess speculation. The trend line should be moderately steep. If it is too steep, then the ensuing bump is unlikely to be significant enough. If the trend line is not steep enough, then the subsequent trend line break will occur too late. Bulkowski advises that an angle of 30 to 45 degrees is preferable. The size of the angle will depend on the scaling (semi-log or arithmetic) and the size of the chart. It is probably easier to judge the soundness of the trend line with a visual assessment.

Bump Phase: The bump forms with a sharp advance, and prices move further away from the lead-in trend line . Ideally, the angle of the trend line from the bump's advance should be about 50% greater than the angle of the trend line extending up from the lead-in phase. Roughly speaking, this would call for an angle between 45 and 60 degrees. If it is not possible to measure the angles, then a visual assessment will suffice.

Bump Validity: It is important that the bump represent a speculative advance that cannot be sustained for a long time. Bulkowski developed what he calls an "arbitrary" measuring technique to validate the level of speculation in the bump. The distance from the highest high of the bump to the lead-in trend line should be at least twice the distance from the highest high in the lead-in phase to the lead-in trend line . These distances can be measured by drawing a vertical line from the highest highs to the lead-in trend line . An example is provided below.

Bump Rollover: After speculation dies down, prices begin to peak and a top forms. Sometimes, a small double top or a series of descending peaks forms. Prices begin to decline towards the lead-in trend line , and the right side of the bump forms.

Volume: As the stock advances during the lead-in phase, volume is usually average and sometimes low. When the speculative advance begins to form the left side of the bump, volume expands as the advance accelerates.

Run Phase: The run phase begins when the pattern breaks support from the lead-in trend line . Prices will sometimes hesitate or bounce off the trend line before breaking through. Once the break occurs, the run phase takes over, and the decline continues.

Support Turns Resistance: After the trend line is broken, there is sometimes a retracement that tests the new found resistance level . Potential support-turned-resistance levels can also be identified from the reaction lows within the bump.

Thomas Bulkowksi

Look at Weekly Chart Divergences in RSI, Slow Stochastic's, and TRIX
+1 Reply
nmike QuantitativeExhaustion
good use of different period same indicator superimposed
+1 Reply
Period still the same, weekly, but yes you are correct, indicators periodicity are for a weekly/monthly chart readings.


TRIX (5) monthly, TRIX weekly (7); RSI (7) monthly, RSI (14) {weekly or daily depending on underlying}; {Slow} Stochastic's (5,1,2) monthly, {Slow} Stochastic's (7,1,4) weekly
+1 Reply
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