The 42/49/55 day reaction technique by Chuck Carpino
The 42/49/55 day reaction technique is a trading method I have used for years to buy a stock or index. Although the signal is infrequent, its reliability for a substantial profit is extremely high. In addition, the technique allows low-risk trades because stops can be placed close to the entry points with confidence. The indicator is based on a simple chart pattern that must occur within a specified time period. The pattern, should it evolve, will always take place during a market pullback. The basic signal is a stock completing three down waves in either 42, 49 or 55 calendar days from its peak. The third down wave must occur within one day on either side of the 42-, 49- or 55-day count. It is not necessary for each top to be lower. On occasion, the last top exceeds the previous one. In the pattern's most recognizable form, each low is lower than the previous low. Quite often, however, only a double low formation will appear. But the final low will never be a higher low.
A few minor rules should be followed when employing this technique. If the reaction begins in February, a short month, it is possible to end up with three waves occurring a day short of one day on either side of 42, 49 or 55 days. It also should be noted that, on occasion, a stock will make a peak at the same price over several trading days, or identical tops will be separated by a weekend so it will not be clear as to exactly which day the count should begin. Don't allow this to confuse you. If the pattern is clearly there, use whatever beginning date it takes to arrive at a proper calendar count. A pattern of only two waves down into the 42nd day does not qualify as a buy signal. Buying should be delayed because there may be a third leg down into the 55th day. Occasionally, you will see stocks that will show four waves down into our calendar-day count. This will usually occur on the 55th day and that is an acceptable buy point.