I sent this chart out to IQ Alert Subscribers last night shown the potential for a bounce in GDX. This was pointed out to me by Andrew Nyquist of See It Market. To be honest I thought we might break a little lower than we did and maybe test the 41.00 or 40.80 level, but the reversal today has been phenomenal on very large volume. At one point GDX bounced 6.11% off the low of the day.
Sometimes Fibonacci levels can provide fantastic trading opportunities, particularly when they occur at such prominent levels that coincides with previous key support. Add in to this the oversold nature of the gold miners ETF and it was well set up for a good bounce. The 50% retracement level of the October 2009 to September 2011 rally was around $41.33. You can see we briefly broke that level this morning and then the market was very rapidly bid up on huge volume, with the rally reaching as high as $43.60 during the day.
There are fantastic trading opportunities when you can find set ups like this where there is a confluence of support, Fibonacci level and oversold / overbought conditions as long as you have sounds risk management. Time will tell if the GDX rally sticks, I think we need to see some confirmation tomorrow before we can call this anything other than a bounce, but i’m sure those who bought in around $41.33 this morning are pretty happy right now.
Do you ever use Fibonacci levels in your trading decisions? Let me know if the comments.
Update information from May 10thb
I have another interesting chart on Fibonacci ratios that I wanted to share. This is a 2 minute chart for the trading day of May 10th. The Fibonacci lines are drawn from the swing high in the morning to the swing low around midday. Multiple times throughout the rest of the trading day, GDX found either support or resistance at key Fibonacci levels.