The first half of the day was pretty much stuck inside yesterday’s range, but that doesn’t mean there were no Fibonacci or Trendline setups. The real question is whether your trading plan allows you to trade them inside of congestion.
We started with a gap down, and I was almost tempted to short as we dropped below yesterday’s low. What stopped me? The fact that we were only a point from reaching a Fibonacci level that often changes market direction — 127% of the previous move. And that’s exactly where we reversed.
Point #1 was a 61.8% pullback, but now we are back inside yesterday’s congestion. The #2 bounce came right at yesterday’s low. Logical movements, but no trade setups that I would be comfortable with. After #2 you can draw the lower yellow line and the upper yellow line extending from #1. It is just a parallel to the lower line. And that’s where the rally stopped – point #3.
The pullback to point #4 turned right at the uptrend line, and if the stochastic had gone a little lower it would have been a nice setup. But everyone is waiting for the Fed minutes, and volume is even lower than yesterday. If I had really wanted that trade, I might have taken the break of the blue moving average as an entry – but not today.
Point #5 is really interesting. On any other day that would have been a short entry. Notice how price couldn’t make it back to the yellow parallel trendline. That shows loss of upside momentum. What doesn’t show on this chart is that a faster Stochastic made a perfect DIVERGENCE on the highest peak. Loss of momentum + divergence = potential short sale. How I wish.
Down until the release of the Fed minutes. Then down hard, and you needed a much shorter timeframe chart to see any possibility of a pullback entry. Notice that panic spike at the bottom. The market tried to turn up at the 127% retracement, but then took the final plunge. And the real turnaround — right at the low from two days ago AND at the next Fibonacci level — 162%.