We believe that the Fibonacci retracements are the underlying structure of all markets and in these weekly examples we give educational and actionable information.
As usual we will go back to show you where it has come from and what key levels they held first, then bring you up to date.
This example will deal with the stock MMM, even if you do not trade it, the rules and guidelines in this article can be used in all markets.
In the first chart we will go over the years range, starting with the 1/14/20 high. Each rally on the break from this high was only able to go either 23.6%, or 38.2% marked by the red arrows. The basic rule whenever they hit one of these two retracements, is that the market should go make new lows to keep the trend intact. When they fail to do this, it is telling you there is a possible trend change. This was confirmed when after it went 38.2% of the move on 3/31/20 (4th red arrow) it failed to make a new low and held 38.2% of the small rally from the 3/23/20 low and then took out the 3/31/20 high. When this happened the target became 61.8% based on the 38.2% rule. Before it did hit that target on 4/28/20, it held 23.6% of the current rally on 4/21/20 keeping the new uptrend intact.
Hitting the 61.8% target on 4/28/20 brings in the 61.8% rule, this is, that any market that holds 61.8% should go 61.8% of where it just came from. This target was 133.00 and it was hit on 5/14/20. One thing to remember, even though the target is 61.8%, we will watch all the retracement to see if anything is changing. This goes for any retracement and target. The quick rally from 133.00 went right to 61.8% of the break at 151.20, again the 61.8% rule. The 3 day break from there held 38.2% and the rally continued on up to 78.6% of the year's range. The 78.6% rule is just like the 61.8% rule, in that it can take you 78.6% of where it just came from, but as mentioned above, we watch all the retracements from there.
The break from 78.6% could only get back to 38.2% of the 3/23/20 low, this was 149.00 and this kept the trend intact. The rally from there took them to new highs for the move.Each of the two breaks from the new highs up at 173.00 could only get back to 23.6% of the 3/23/20 low and 38.2% of the 5/14/20 low, this area was 159.00 to 157.00. The rally from this area again went to new highs for the move.
The 3 yellow eclipses will be explained in the next chart when we go to the long term view.
In this weekly chart we are going back to the all-time high made in 2018. We will show you the importance of watching all the major levels as well. The retracements from this high are the yellow eclipses on the previous chart. The first one was 23.6% hit in April of this year, the break from there failed to make the new low, meaning a possible trend change is coming, but as always 38.2% that has to come out to say the trend has changed. This was the second yellow eclipse with the high in June. When this high was taken out it gave us a "long term target" of 61.8% of the same range, based on the 38.2% rule, this is 204.00. As we said above, we watch all the retracements and the third yellow eclipse is 61.8% of the 3/23/20 low and the 4/24/19 high, this is 179.00. From this current high, if we use the 61.8% rule, the possible target is 61.8% at 140.00. Now any break from this area that can only go 23.6%, 38.2% back of the rally, as the last two setbacks did, is a very positive sign and with a couple solid closes above 179.00, the long term target of 204.00 comes back into play. This is 61.8% back up to the ATH.
On this chart you can also see that the low made in 2018 was 38.2% back to the 2009 low and the 3/23/20 low was reacting from 61.8% of the same move. This just goes on and on the more you look at the Fibonacci retracements and as we believe they are the underlying structure of all markets.
You can find all the rules/guidelines and examples for the Fibonacci retracements on front page.
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