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):
Heavy selling in many stocks owned by funds
4 hours ago