back start next


[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [ 14 ] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [83] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95]


14

3Com suffered serious beating, as the stock sold off nearly 60 points in the beginning of 1997. The stock then rallied, experiencing a "dead cat bounce" that reversed right off the .618. After reversing, the stock declined again, losing all that it recovered. Lets look at the chart.

3COM (COMS): WEEKLY BEAmSH .618 RETRACEMENT

BigCharts.com

0 H E 97 F fl H J J fl SON D 98F fl fl J J fl SON D 99 F fl fl J J

3Com experienced enormous resistance at the .618 retracement of the previous decline. In fact, the stock reversed after exceeding the .618 by less than 3/8 of a point. The .618 retracement of the decline of the XA leg was

89817865



projected at 59 7/16. The stock hit 59 3/4 and reversed! Within a few days after hitting the .618, the stock sold off steadily.

I have included an enlarged chart that clearly shows the price action at the .618 retracement. The price action indicated severe resistance, as the stock formed a very bearish price bar on the week that it hit the .618.

.618® 59 7/16

3COM (COMS): WEEKLY

ACTION®.618 RETRACEMENT

eaigChart.com

uiilnl

Aug Sep

60 59 53 57 56 35 54 53 52 51 50 49 48 47 46 45 44 43

60 40 20 0

This chart shows that 3Coms could not rally above the .618. In fact, the stock stalled after hitting the retracement, only to sell off steadily within a few weeks after the reversal was complete.

In this situation, if you were long this stock, you must respect the resistance of the .618 and take profits. If you were looking to short 3Com, the sharp reversal at the .618 should have indicated that the rally off the bottom was in trouble. Understanding such price action in the ftiture will help you gauge the true nature of a stocks trend.



The next example illustrates the .618 as clear resistance. This daily chart of Dell Computer shows how the stock reversed almost exactly off the .618 projection of the prior decline.

0Big,Ch3rte,Mm

DELL COMPUTER (DELL): DAILY BEARISH .618 RETRACEMENT

lllllllllhllllllllllllilllhlllllll

200 150 100 50

An interesting aspect ofthis chart is the individual price bar on the day the stock hit the projection. The stock possessed a very bearish candlestick after it hit the .618 retracement. Dell sold off from a high of 55 (pt. X) and bottomed at 35 7/16 (pt. A). The .618 projection of this move was calculated at 47 9/16. The stock exceeded this projection slightly, as it reversed at 48 21/32 (pt. B). So, even if you waited a day, the bearish continuation confirmed the valid reversal.



[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [ 14 ] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [83] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95]