For some reason my data provider (eSignal) always includes several hours of holiday trading in their feed, and although I can screen it out in the S&P Futures, it still shows up in the Russell 2000. If you can ignore the “extra” bars on the chart, this morning’s bounce came at a logical Fibonacci level.
Without the extra data the trendline (from the 15 minute chart) would hit at a slightly different level, and perhaps there would have been a divergence in the Stochastic — there was in the shorter Stochastic I was watching at the time.
We opened with a small gap and a 15 minute drop (A), made a three bar pullback (B), and bottomed (C) with a slight penetration of a trendline that started from the February 12 low. The bottom was a precise 78% retracement of the rise from the low on Friday.
Whenever I have and A-B-C move (down-up-down) I take the distance from X to A and multiply it by Fibonacci ratios to get 62%, 100%, and 162%. These numbers are subtracted from the pullback (B) to give potential turning points for the move.
If the move is strong it will carry to 162% or further. If it is an average move, it will stop at 100%. And if it turns at 62%, you are more likely to get a good reversal. Trendline support, a 78% retracement, and an A-B-C that turned at 62%. We got a much better reversal than I expected. There was no reason to exit until we got to the rectangle area at lunch hour.
I don’t trade rectangle breakouts unless there is a nice volume increase, but the pattern on this one looked good. A breakout at about 11:00 (Pacific) followed by a pullback to the support at the top of the pattern. The first target on a rectangle is when price duplicates the width of the rectangle. That was the high of the day.
