Retracements
The following forecasting method is an approach to charting price
retracement in stocks, commodities, indexes, or any free market. It is a
study of momentum, an evolution somewhere between Gann and Elliott Wave that
allows traders to project an ideal entry price in a stock after a correction
in price.
In this approach, a price move of any proportion will attempt to retrace
itself by 38%, 50% to 62%. I know the purists use 61.8%, but I have found
62% serves me well.
A trader who applies these correction techniques spelled out in the
following calculations, will quickly develop a new market perspective, a
perspective of market direction. When a trader uses this wave analysis in
combination with cycle analysis, as I do, the probability of success is
magnified.
Remember that stocks do not go straight up, nor do they go straight down.
The validity of this technique is enhanced by the fact that it can be used
for intraday trading or longer-term projections. In my own trading, I use it
with 5-minute and 10-minute bar charts, yet it proves it accurate over other
time frames too.
It can be applied to rising markets as well as declining ones with no
noticeable difference in results.
Let’s look at Novellus Systems (NASDAQ: NVLS).
The example here in NVLS is using 60-minute bars as the time frame.
This example is similar to many stocks that are currently in a
retracement - including the NASDAQ market.
NVLS rallied from a low of 36 � on May 24, 2000 and rallied up to 58 1/8 on
June 5.
Over the past 6 trading days, NVLS has been drifting lower and now has
retraced 38% and also filled a gap from the June 1 close.
Today, June 13, 2000, NVLS moved to the low of June 1 before the gap and may
have found support where it can move higher from the retracement.
We do not always know how much a stock will retrace, so we take an educated
opinion based on action of other support areas.
If NVLS can hold today’s low, I can see higher prices ahead.
I would Buy NVLS on any up or unchanged open.
I would place a stop at 49 �.
If NVLS gaps down due to economic reports, do not take the trade.
