April 3, 1984 [after (b) ended in a triangle]

The ultimate downside target will probably occur nearer the point at which wave [D] is .618 times as long as wave [B], which took place from June 1980 to September 1981 and traveled 32 points basis the weekly continuation chart. Thus, if wave [D] travels 19¾ points, the nearby contract should bottom at 60¼. In support of this target is the five wave (a), which indicates that a zigzag decline is in force from the May 1983 highs. Within zigzags, waves "A" and "C" are typically of equal length. Basis the June contract, wave (a) fell 11 points. 11 points from the triangle peak at 70¾ projects 59¾, making the 60 zone (+ or - ¼) a point of strong support and a potential target. As a final calculation, thrusts following triangles usually fall approximately the distance of the widest part of the triangle (as discussed in Lesson 8). Based on [Figure B-15], that distance is 10½ points, which subtracted from the triangle peak gives 60¼ as a target.

Figure B-15

June 4, 1984

The most exciting event of 1984 is the apparent resolution of the one-year decline in bond prices. Investors were cautioned to hold off buying until bonds reached the 59¾-60¼ level. On May 30, the day that level was achieved, rumors about Continental Illinois Bank were flying, the 1100 level on the Dow was smashed in the morning on -650 ticks, and the June bonds, amid panic selling, ticked briefly to as low as 59½, just touching the triangle support line drawn on the chart last month. It stopped cold right there and closed at 59 31/32, just 1/32 of a point from the exact center of our target zone. In the two and a half days following that low, bonds have rebounded two full points in a dramatic reversal.

Figure B-16