|
Written and copyright © 2010 by Thomas N. Bulkowski. All rights reserved.
This article discusses using a 38% Fibonacci extension to exit a stock. This is an actual trade made by Mr. Bulkowski.
Diversification
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.
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 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.
Since the stock had moved up in a straight-line run for 1.5 months, I felt that it just might retrace and wanted to capture as much profit as I could. My notes also say a
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
See Also
- CH Energy (CHG), average down on buy side, sell at overhead resistance, +50% in 3 months.
- Coldwater Creek (CWTR), congestion breakout on entry, hit stop on exit, 83% in 7 weeks.
- CNO 2.0. Fibonacci retrace on entry, inverted dead-cat bounce on exit. I made 90% in 2 months.
- Encore Wire (WIRE), rounded bottom on entry, inverted dead-cat bounce on exit, +24% in 2 months.
- hhgregg (HGG), symmetrical triangle on entry, 2B on exit, 13% in 3 months.
- Hudson Highland Group (HHGP), head-and-shoulders on entry, hit stop on exit, +55% in 3 months.
- National Fuel Gas (NFG), ascending triangle on entry, hit target on exit, +23% in 3 months.
|
|
Written and copyright © 2010 by Thomas N. Bulkowski. All rights reserved. I'd love to go out with you, but I'm attending the opening of my garage door.
|
. If you buy ANYTHING, they pay for the referral.
on 