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Thursday, November 13, 2008

Something different...looking for a bounce

I came into the morning watching the 8,000 level on the Dow. My hypothesis was since we had sold off ~10% from Monday's high, that level would provide support and a solid bounce.

I was trading the NQ with my Fibonacci lines plotted over the previous day's high to low. I knew my standard 1.382% Fibonacci extension would not coincide with Dow 8,000, so I also plotted the 1.618% and 2.0% extensions. I was looking for a quality setup around one of those areas as the Dow hit 8,000.

As you can see on the chart below, the bounce came almost exactly at the 2.0% extension (black dashed line). Price formed what our friend and past blog contributor Tom C. calls a "U-turn" and staged a violent rally from that level.

I made an aggressive entry as indicated by the white arrow, and sold half my position at the 50% retracement of the previous day's high to low. After chopping around that level the NQ continued to rally and hit the 1.382% extension at the end of the day, where I sold the remainder of my position.

And if that is not an excuse to take Friday off, I don't know what is.

Note - I marked an additional trade with the yellow arrow; frequent readers should be able to figure out the rationale for the entry.

Below is the updated chart from my "Tracking the Dow chart" series (the bounce is marked with a white arrow on the close-up chart):



Anonymous said...

thanks for the heads up on plotting fibs from yestaday's HOD - LOD. used that plotting style to hit FCX as it crossed up thru the .618 retracement area, which was also horizontal R area to the left.

ive been playing with other fib plots such a low of yesterday that occurred late in the day and would be considered the beginning of the run that includes today's gap up.. so the range is from a low late yesterday to today's ORH 15 minutes.


Barry said...


Tomorrow off? Hell, I would be taking next week off.

I am interested in the conversation you guys had going on in comments of the last post. I hope you reveal the wizard!

Anonymous said...

Great trade. Thanks for the analysis.

Fib Guy said...

Dow 8000! I saw it way too late. I need to be more thorough in my premarket research. Great blog.

hypr said...

X, Why did you not draw your fibs with the OR low of the current day since it was out of the range of the previous day?

btw a great trade!
-thanks in advance

Trader-X said...

hypr - the actual open did not gap down below the pd low (it was in yesterday's range); if it had, I would have included it when I plotted my Fibonacci lines.

Anonymous said...

you seen the new Bond Flick yet?