The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
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 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 Motorola Inc. (NYSE: MOT) as an example.
MOT recently had a nice rise from December 1 at 114 to December 8 at 136.
After hitting this high of 136 on December 8, MOT slowly retraced about
62% of that move back to the 126 area.
Support came in at this level and MOT has now begun to rise againand looks
poised to take out new highs this week.
I would Buy MOT here.
I would place a stop at 126, which is under the congestion area of the last
three days trading.
