Potential Gartley Top in the XLF

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I was looking at some charts and thought I'd pass along some notes on this one. The chart is XLF which is the primary financial sector ETF. I have posted several times in the past about the Gartley pattern and this chart above is looking like a nice one developing. The basics in this case are a downtrend followed by an ABC type retracement where A retraces to the 61.8% level and the C wave retraces to the 78.6% level of the downtrend.

Now there are other factors I find that really increase the odds that the potential Gartley is legit and will lead to a reversal.

-the B wave should not be shallow (should be 61.8% or more of wave A)
-the B wave should take longer than wave A
-if B take a lot longer than A, then C should take about half the time of A+B (basically like a standard Elliott Wave "flat" pattern)

In the chart above all those elements are basically in place. Also, it is nice to see the major indexes, technical indicators, and candlestick/reversal bar patterns confirm at the reversal level.

In that regard we have an extremely excess bullish market bias (more hopefully to follow in a video) which supports a bias toward topping patterns. Also the chart above shows price trapped in a sideways range for the last 4-5 months. This is when oscillators work their best. The RSI above the chart shows it is the most overbought in that time frame, and is at a lower high than the last very overbought reading suggesting a possible shift in longer term trend. Then on a shorter term note, there was a textbook Harami candlestick pattern on Friday. This is a classic reversal pattern. However, it is not high reliability for major reversal. But if Monday should form a solid black/red candlestick, and especially if it managed to close all the way below Thursday's big white candlestick low, then the reliability should be considered to be high.

Another subtlety is that you generally don't want to see the end points of the various waves form a perfect parallel channel. In this case the C wave should end below or above the upper trend line. So far it is still below. Then I have also posed a possible Elliott wave suggestion to complete the move. In this case wave C should be expected to be a 5 wave pattern. But because of the Harami and other technical factors, I would expect it to end at a lower high (truncation) than wave 3.

So the point of this is that yes XLF may be a nice short right now, but even more so, I look for key sectors or stocks to tip the hand at what to expect from the broad market. For instance if the darlings of the street like AAPL and GOOG would happen to be forming picture perfect long term reversal patterns, then you better expect that the market will be headed down along with those stocks. When the market leading/high relative strength stocks turn down that is a clue that a significant bull run is over. In the case of XLF or XHB (financials and housing) non confirmations and reversal patterns may be a sign that the market still sees trouble in those sectors, and that the general market is weakening and about to turn down.

Now I am really hoping to get a video made covering a whole bunch of charts because I feel it is important right now. In case I don't get that video up to show all the evidence, the summary is "get the heck out of stocks." Of course you all have to make your own decisions, but that is my opinion on both an intermediate term time frame (several weeks to a few months) and it looks like probably for even longer term (several months to a year or more). At the very least I think if one believes the worst is behind, then wait until a legit correction of 10% or more and put some money in at that point if it still looks like a "normal" correction when we get there. Even bull markets typically experience 10%+ corrections along the way every year or so, and we are 10 months in without one.

Also, Technology and Health Care are two of a handful of sectors which Rydex data suggest have gotten "too much" money flowing that way. I plan to show those charts and others for those whom it may benefit.