When it comes to trading — there are a few schools of thought…
And to be honest with you, some were exposed this year — the so-called quants and fundamental traders tried to make sense of stocks, but couldn’t.
There was one group of traders who thrived (if they knew what to look for) — the technical traders who focus on price action.
You see, there’s one factor that causes stocks to move…
Supply & Demand
If you understand how to identify areas in which demand can pick up (or supply can pick up), it’s possible to uncover trends.
While there isn’t a be-all-and-end-all technical indicator out there…
There is one that comes pretty close.
“JC, Fibonacci is voodoo!”
I’ve heard that so many times, but just take a look at this chart below.
Look where Transports started to outperform! At exactly, the 50% retracement of the entire move higher off the lows 20 years ago. Ignore these levels if you’d like. I really won’t.
To me Fibonacci retracements allow you to find key areas of demand, while the extensions allow us to uncover potential areas to take profits.
Let’s take a look at another area in which the Fibonacci tool would be useful.
What about Airlines? Is it similar to the Dow Transports : S&P 500? Will the squeeze continue?
I think so!
Now for you, stock market bears, what if Ball Corp (BLL) is above last year’s highs?
Do you sell it because you can’t handle a bull market in stocks?
BLL is approaching $30B in market cap, and it just broke out of highs. Right now, based on the BLLFibonacci tool, I’m looking at $112 as the target.
And as a reminder, Materials went out at yet another all-time weekly closing high. I’m not buying the “flight to safety” trade into chemical stocks. To me, this is a classic rotation in a very standard and perfectly normal bull market in equities.
With XLB, I’m looking for a target at the 261.8% Fibonacci retracement, which is right around $78.
Of course, there are other technical indicators to utilize out there, but if I were to choose one… Fibonacci would be my go to.