IYT, the ETF for Dow Jones Transportation Average, is currently at a Yellow Light on the road to upside continuation.

It is my opinion that harmonic patterns create a roadmap for price action and according to three different timeframes and their respective harmonic patterns, there are roadblocks toward the North and open roads to the South.

From left to right, the timeframes are Hour, Day and Week.

To comment on the longer perspective, the four lane highway per se, the Week chart, there was a completion of a pattern, called a Bearish Deep Crab, that completed at 173.34.  The region of the completed pattern, aka PRZ (Potential Reversal Zone), is between 173.34 and 165.58 and currently price is holding below the PRZ.  So as long as price holds below 165.58, the probability is to go into Retrace Mode (aka play out the bearish pattern) and the ideal minimum target is between the blue zone 151.35 to 137.44.    I call this zone the GRZ (Golden Ratio Zone)

The two lane highway, the Day chart shows price has begun to make lower highs and in an emerging harmonic pattern, called a Bat.  Now to complete the Bat price is required to continue going lower.  The ideal target is 145.35 and that scenario increases with a break down of 158.19 then more important 153.98.  Again the GRZ comes into play, it is like a decision region and where price holds beyond it offers initial directional bias.

And the two way county road, the Hour chart, shows a bullish Deep Crab was completed, did go into Retrace Mode to the GRZ but remember how GRZ’s are like decision regions and where price holds beyond them gives clues for directional bias?  Notice how price fell below the GRZ and returned to the pattern’s PRZ.  Failure to retrace more than this is a sign of weakness.  It doesn’t mean that there won’t be another attempt to retrace higher but keep an eye on that 163.02 for an important resistance test.

Putting this all together, the current best route in the state of higher probability is lower prices.  There are opportunities for u-turns if key levels can hold up price, namely the GRZ and PRZ levels, compliments of harmonics!

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