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]
19 The .786 retracement can act as a "last chance" resistance point before retesting the previous high. It is a very key area because stocks that reverse off a .786 retracement of a prior high usually indicate weakness in the price action. Lets look at the illustration.  8 .786 retracement sell at ! When a stock is rallying especially after a substantial decline, the .786 is an important projection point. In my opinion, a stock that can break through the .786 retracement usually will retest the previous high. However, if a stock can not rally above this point, the ensuing reversal can be quite significant. Lets look at some examples, as they will clearly illustrate the concept.
The following chart of America Online is a fantastic example of resistance at a .786 retracement. Although the stock exceeded the projection slightly, AOL had tremendous difficulty rallying through this retracement.  AMERICA ONLINE (AOL): DAILY BEARISH .786 RETRACEMENT ® BigCharts.com lllllllilllllj llll  60 40 20 19 23 25 29 6 8 12 14 16 20 22 26 28 5 7 Despite the extreme volatility, AOL clearly reversed after hitting the .786 retracement. From the early April high at 175 1/2 (pt. X) to the following low at 112 (pt. A), the stock bounced and reversed just past the .786. The .786 retracement was projected at 161 15/16 and AOL reversed after hitting 167 1/8 (pt. B). This might have been a difficult execution to gauge. The day before the stock reversed, it hit the .786 and even closed near the high of the day. Also, on this day, the stock gapped up on the open several points. Since these waming signs occurred at an important Fibonacci number, the trade
should have been avoided on this day. Despite this price action, the stock could not follow through on the upside, and America Online clearly reversed the following day. When a stock can not continue its rally through the .786, as this example of AOL demonstrates, you must regard this action as bearish. This is especially significant, since the stock formed an extremely bearish candlestick the day after hitting the .786. Ifthe stock was going to rally higher, the price action should continue to move up, forming higher highs and higher lows. Also, another bullish indication would have been a close above the .786 on the following day. America Online could not continue its rally. So, if you waited a day, the clear reversal bar would have indicated that the .786 was indeed acting as strong resistance. Your patience would have been rewarded, as AOL declined over 30 points in the next few days after the reversal occurred. The next chart of 3Com is another example of a stock that sold off sha ly after almost exactly hitting a Fibonacci retracement. 3Com experienced significant resistance at the .786.  Volume 3com (coms): daily bearish .786 retracement 60 40 20 MJJflSO HD98FnflHJ JflSO HD99F11
[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]
|
Menu
