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27

AMEHCAN INTERNATIONAL GROUP (AIG): WEEKLY

BULLISH 1.618 PROJECTION

130 120

100 90 80 70

BjgCh9rts.com

20 15 10 S

n fiH JJR 80H 99 JJ

As you can see AIG declined steadily for over three months before reversing off the 1.618. The 1.618 projection was calculated at 68 1/16. The stock reversed after bottoming at 64 3/8. Although AIG exceeded the 1.618 by a few points, it was able to finish the week above the projection.

In this situation, the stock provided several signs of a valid reversal. The close above the 1.618 and the following weeks price action are excellent indications of a new uptrend underway. It is important to recognize these signs after a stock hits a significant Fibonacci number to determine valid reversals.



Bearish 1.618 Projection

The bearish 1.618 is a very important Fibonacci number because it is an excellent area to take profits or enter a short position. As I have stated previously, the 1.618 represents an extreme price area. Often, when a stock hits this projection, it will encounter substantial resistance. If this happens, the rally usually will reverse.

bearish 1.618 projection sell at b!

Although stocks do exceed the 1.618 area, it is important to understand that such action can be difficult to maintain. Also, if the area is exceeded, the price action should rally strongly through the area to ensure that a reversal will not occur. Therefore, it is critical to examine a stock closely in this area and be prepared to sell. The following examples will demonstrate the bearish 1.618 well. It is important to study how these stocks had difficulty breaking above the projection area. These examples will help you understand the importance of the 1.618 and will help you properly gauge other stocks that reverse off this area. Lets look at the examples.



The following weekly chart of Medtronic shows how the price action reversed significantly off the 1.618 projection from the prior sell-off. The most important aspect ofthis chart is the lack of a continuing rally above the 1.618. Although the stock exceeded the 1.618 slightly, Medtronic could not convincingly move above the projection.

44 42 40 38 36 34 32 30 28 26 24

80 60 40 20 Q

MEDTRONIC (MDT): WEEKLY

BEARISH 1.618 PROJECTION

Voluiif I

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iuHii hiIiIiIiIiiIiIiIiIhIII i 1

Jul fiug

Oct Hoy

Sec 99

F9b Mar Apr >

The 1.618 projection was calculated at 43 1/16. Initially, the stock seemed to be rallying strongly through this area. However, within a few days after hitting the 1.618, the stock stalled, failing to move higher. The stock reversed at 44 5/8, which occurred on the week it hit the projection.



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