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]


28

This enlarged daily chart clearly shows the resistance Medtronic faced at the 1.618 projection. This is an excellent chart to study because ofthe price action at the 1.618. Since Medtronic was rallying sharply as it approached the projection, you might have thought that the stock was not going to encounter any resistance in this area. However, the stock "hit a wall" at the 1.618, and started to break down.

1.618 PROJECTION @43 1/16

MEDTRONIC (MDT): DAILY PRICE ACTION @ 1.618 PROJECTION

45 44 43 42 41 40 39 38 37 36

Volume

OBigCharts.coiti

2S 29 Ftb 2 3 4 5 6 9 10 u 12 16 17 18

When a situation like this develops, it is important to respect what the price action is indicating. The stock had extreme difficulty rallying above the 1.618. This is especially significant since the stock had rallied sharply in the few weeks prior to the reversal. In fact, Medtronic was up nearly 10 points during the two weeks prior to the reversal. If the stock was going to rally well above the 1.618, it should have continued this strong rally. But, after it hit the 1.618, Medtronic could not move higher and started to sell off. Within a week after hitting this area the stock gapped down shai-ply and started to make new lows.



Such resistance at a major Fibonacci number is a clear indication of a potential reversal at hand. Even if you did not sell on the day the stock hit this projection, the following several days indicated that this stock was experience strong resistance. The stock started to sell-off and led to a reversal that resulted in a 30% decline within a few months.

The next example of Oracle also illustrates resistance at a major 1.618 projection. Oracle rallied slightly past the 1.618 projection of its prior decline but the stock had difficulty moving higher. The 1.618 was projected to complete at 37 9/16. The stock hit 41 3/16 and it sold off dramatically.

©SigChsrts.oom

ORACLE (ORCL): DAILY

BEAmSH 1.618 PROJECTION

I J fl S 0 M D 98 F fl fl fl J J R S 0 N D 99 F fl



This next chart shows the price action at the 1.618. As you can see, the stock topped in this area. An interesting aspect of this reversal was that the stock gapped up on the day it hit the projection. However, Oracle could not follow through on the upside and within a few days, the stock started to sell off

1.618

projection (5)37 9/16

oicle (orcl): daily price action m 1.618 projection

Volume -

SBigChrtrts. com

mill.....illiiliiiiiilliiiiliiiii.lill

12 14 19 21 25 27 25Feb 3

16 13 22 24 Zmsf 3

15 17

41 40 39 33 37 36 35 34 33 32 31 30 29 28

It is important to recognize the significance of this price action at the Fibonacci projection. This stock clearly was topping out at the 1.618. The price action at the 1.618 quickly tumed bearish, and a new downtrend was in place.

It is important to remember that when the 1.618 is exceeded, the price action is in an extreme state. In this case, Oracle was over-bought and it was clearly having difficulty breaking above this level. If you were long and you observed this type of action above the 1.618, you must think sell! Take your profits and be happy! If you were lucky enough to participate in this rally, you have to take profits at some point. It is important to let the numbers gauge the price action and indicate when to take profits. In this instance, the 1.618 accurately gauged the exhaustive nature of this rally and clearly was proving to be a good point to get short or cover a long position.



[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]