Charts which stand out from others that conform particularly well to patterns and levels I like to call “voodoo charts”…..you know, that technical analysis voodoo stuff fundamentalists frown upon. If you like to think of them as squiggly lines, then by all means stop reading here. If you think technical analysis predicts the future, again, please stop reading here. Technical analysis uses past data to create projections, not predictions, of probable outcomes. Sometimes it works, sometimes it doesn’t, but when it does work, in some instances technical analysis can be eerily accurate. Those are voodoo charts to me.
Here’s a prime voodoo chart – CyberArk (CYBR) meets Fibonacci. CYBR’s quick +113% rip in February preceded a pullback, but to where? Looking at this in late February, where would you think a good place would be to buy this after it doubled so quickly? The 38.2% level provided a bounce, and while the 50% level didn’t really figure in, 61.8% surely did. The March 16 buy point which could have been determined as early as February 23 proved to be greater than 99% accurate. If your fortune-teller told you to buy near the 61.8% retracement then you’re holding a 27% gain today. If you don’t have a fortune-teller you could also have just used Fibonacci levels.
CYBR’s buy point is old news though. Advanced Semiconductor (ASX) is a voodoo chart that is progressing now which I currently have a position in.
The shooting star candle of March 6 sent a blaring sell signal, setting the parameters for the Fibonacci levels at 5.91 for lower and 8.12 for upper. Afterward, there was a bounce at the 38.2% level, support for a while at the 50% level, then finally a dip down to the 61.8% level on April 16 which painted a beautiful hammer candle on 2.5x average volume. Seeing ASX withstand Friday’s sell off closing down just .29% was encouraging. Despite conforming to the 61.8% level, ASX does have a habit of dropping down to the 200 DMA, currently at 6.46, therefore I’m accounting for that in my position size in advance. The 78.6% fib level is 6.38 – a close under that knocks me out of this trade.
If I think a stock’s price is establishing support at the 50% level then I’ll sometimes buy a 1/2 position there, then add the other half if it does end up retracing to the 61.8% level. In that case, I end up with a full position calculated to exit on a failure to hold the 61.8% level. I did this with ASX buying a 1/2 position at each level, then I was able to reduce the size Friday at break even. I now have a position size to allow me to add if price drops to the 6.46 – 6.38 range if I choose to.
Finally, here are some charts I’m looking at for future buy points if they reach levels I’m looking for.
Good luck trading this week!