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IYR Opens Doors To Butterfly

Kathy Garber

IYR, the ETF for US Real Estate, has tested the lower region of the PRZ (Potential Reversal Zone aka the area defined by a harmonic pattern’s completion zone.  This particular pattern on the Day chart, on the right, shows the PRZ between 80.99 to 81.58.

The left chart is the Hour time-frame and due to another harmonic pattern, called AB=CD,  price is attempting to pull back to retrace the pattern.  The blue colored zone represents the ideal minimum targets for retracement and it tells a story whether the Retrace Mode is strong or weak.

This Retrace Mode attempt of the Hour chart scenario helped cause the initial Day PRZ test be a snap back.  There was expansion on that Day chart to test the PRZ, I like to refer expansion like an exhale or stretching a rubber band.  There comes a point where there’s no more air to exhale, so an in-breath is forthcoming.  When the inhale occurs, it shows on a chart like a stall (chop) or pullback into support scenario, it doesn’t define a shift in overall bias until proven otherwise, ie take out important levels.

So in this case, currently the Day chart bias is to the upside but risks shifting to the downside below 77.97, this level subject to shift up if all levels of the PRZ are tested.  And if the Hour chart shows a healthy Retrace Mode, below 79.98 risks shifting the intraday perspective to a downside pull, this scenario would help the Day charts targets get met at 79.15 and 78.71.

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