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23

An interesting aspect of this reversal is that the stock finished the day unchanged on the day. This price bar pattem is known as a doji in candlestick terms. Since the price action was very extreme on this day, you probably should have waited a day. However, such a price bar should indicate a potential reversal at hand, especially after hitting a major Fibonacci projection.

1.27 PROJECTION @ 1701/8

BR0ADCAST.COM (BCST): DAILY

PRICE ACTION® 1.27 PROJECTION

180 175 170 165 160 135 150 145 140 135 130 125 120 115 110

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12 13 14 15 16 19

This enlarged chart clearly shows the price action at the 1.27 and the doji that formed on that day. It is also important to notice that the stock clearly broke down after the reversal was complete, as Broadcast.com made new lows and could not break above the previous days high. In fact, the stock sold off sha ly four days in a row after hitting the 1.27 projection. So, even if you waited a day, the price action clearly confirmed the new downtrend. Broadcast.com lost almost 70 points within two months.



This next chart of The Globe.com is another excellent example of the 1.27 as resistance. The stock reversed almost exactly at the 1.27 projection. The 1.27 was calculated at 42 5/16, and The Globe.com reversed at 42 3/4! This is truly amazing, especially since the stock rallied so sha ly on this day. In fact, the stock was up nearly 15 points.

THE GL0BE.COM (TGLO): DAILY

©BigCharts.MUTi

BEARISH 1.27 PROJECT

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Since the stock was up so much on this day, you should have waited to see the following price action. Clearly, the stock was over-extended, as it started to sell off the next day. Within a few days after the reversal, the stock sold off sharply and lost 40% of its value.



1.27 Channel

Similar to the .618, the 1.27 often occurs repetitively in channels acting as a significant reversal point. Stocks fi-equently trade in a defined ranged with a consistent slope. In the case of an uptrend, very often, the 1.27 will usually be the located at the upper range of the trend channel. In this instance, the 1.27 can be an ideal place to take some short-term profits. In a downtrend, the 1.27 projecdon can be used to for a short-term buy or cover a short position at the lower range of the channel.

1.27 Bullish Channel

bullish channel: resistance at 1.27 projection

In a bulUsh channel, the 1.27 Fibonacci projection of a prior decline very frequently can act as a resistance point. When such repetitive price action is identified, the 1.27 and the upper range of the trend channel can serve as a potential trade opportunity.

Although this seems like a simplistic diagram, price action fi-equently resembles this illustration. The combination of the trend channel and the Fibonacci projections can clearly indicate important reversal points for a stock. The next example will illustrate this set-up.



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