As of 06/14/2019
  Industrials: 26,090 -17.16 -0.1%  
  Transports: 10,305 -42.06 -0.4%  
  Utilities: 816 +7.97 +1.0%  
  Nasdaq: 7,797 -40.47 -0.5%  
  S&P 500: 2,887 -4.66 -0.2%  
YTD
 +11.8%  
 +12.4%  
 +14.4%  
 +17.5%  
 +15.2%  
  Tom's Targets    Overview: 06/13/2019  
  Up arrow26,800 or 25,400 by 07/01/2019
  Up arrow10,700 or 9,900 by 07/01/2019
  Up arrow830 or 780 by 07/01/2019
  Up arrow8,150 or 7,575 by 07/01/2019
  Up arrow2,950 or 2,800 by 07/01/2019
As of 06/14/2019
  Industrials: 26,090 -17.16 -0.1%  
  Transports: 10,305 -42.06 -0.4%  
  Utilities: 816 +7.97 +1.0%  
  Nasdaq: 7,797 -40.47 -0.5%  
  S&P 500: 2,887 -4.66 -0.2%  
YTD
 +11.8%  
 +12.4%  
 +14.4%  
 +17.5%  
 +15.2%  
  Tom's Targets    Overview: 06/13/2019  
  Up arrow26,800 or 25,400 by 07/01/2019
  Up arrow10,700 or 9,900 by 07/01/2019
  Up arrow830 or 780 by 07/01/2019
  Up arrow8,150 or 7,575 by 07/01/2019
  Up arrow2,950 or 2,800 by 07/01/2019

Bulkowski's 38% Exit

 

This article discusses using a 38% Fibonacci extension to exit a stock. This is an actual trade made by Mr. Bulkowski.

 

Diversification

Picture of Pinnacle West Capital (PNW) on the daily scale.

The home-built program I use to track my stocks allows me to view the allocation of each stock and each industry with the push of a button. When I felt as if Pinnacle West Capital (PNW) was overbought and it was time to sell, I looked at my allocation. I had 19% of my money in the stock. The next closest allocation was 6% in another utility stock. Even after selling a portion of it, I still have 13% wrapped up in the stock. If I need to sell or if the stock hits my next price target (39-40), I know where to go to find the cash.

Anyway, I bought the stock several times and this sale matches a buy I made on August 1, 2008. I entered the stock on an ascending triangle breakout, and received a fill at 33.26. At the time, the stock paid a 6% dividend.

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The Fibonacci Extension Sale

Zoom ahead to December 15, 2009, the day before I sold. My reason for selling the stock was for diversification. I wanted the money to buy other stocks I liked and to cut the allocation, as I already discussed. The Wilder RSI (relative strength index) said the stock was in the overbought range, but it can stay that way for months. The commodity channel index (CCI) said sell.

What I really wanted to explain about this trade is the 38% Fibonacci extension. I have written many times about using Fibonacci retraces, 38%, 50%, and 62% of the prior move. In this case, I used an extension of the AB move. Here's how it's done. In this trade, I used the widest points in the broadening top chart pattern. Point A is at a high of 35.48 and the low (B) is at 31.08 for a height of 4.40. Multiply this by 38% and you get 1.67. Add that to A to get the target I show as a green line, at 37.15. Notice how the stock began to turn near the extension level.

The ideal evening star candlestick

Since the stock had moved up in a straight-line run for 1.5 months (from the low at B), I felt that it just might retrace and wanted to capture as much profit as I could. My notes also say an evening star candle appeared (shown in the figure to the right), and price had closed lower two days in a row. Although I suspected then, and still do, that the stock will continue up, I sold a portion of my holdings at 37.59.

I made 13% on the stock but it qualifies as a long term gain. The kicker is, I also collected dividends which pushed up my total return to 21%. How do you spell green? M-O-N-E-Y!

Aftermath

The stock turned around and formed a double top which confirmed when price continued sliding. On February 1, 2010, the stock closed just below 36.

-- Thomas Bulkowski

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See Also

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.
Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns Bumper's Story Head's Law
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