FAS Correction

FAS has gone into correction, breaking the channel lines on the lower side as addressed in the last paragraph of the previous FAS entry, FAS Cycle Count. The question now is where is it going and when will it arrive. Two potential objectives are apparent: 1) the 50-day moving average, and 2) the lower Bollinger band.

This expanded graphic shows the 50-day moving average is synonymous with the trendline drawn from the March 6th bottom. Assuming an ABC correction is underway as shown on the graph, the C leg could complete at the 50-day moving average and trendline as soon as Tuesday or as far into the future as Monday, June 1. This level also equates to a Fibonacci retracement of 50%, adding further to the attractiveness of this level.

The other alternative is the lower Bollinger band now approaching 7.00, which is also a support level dating back from before the March 6th bottom. It does not relate to a Fibonacci level, so may be the lesser attractive target. The correction may "pay tribute" to both levels by dropping to the lower intraday, but closing at the higher.

The main point to make is that projecting which is correct is mainly academic. Trading should be done on what happens, not what one thinks will happen, and should always be accompanied with a stop loss in case one is wrong. If the price action indicates a bottom is made at the 50-day moving average, a trade can then be initiated with a stop loss order placed under the 50-day moving average. A reward:risk ratio there should better the 3:1 minimum required.

Longer term, this ABC may be just the A leg of a longer-term ABC correction. If so, we still should get a strong B leg up that can be traded--albeit carefully. There is also the mirror ETF for FAS--FAZ. As FAS corrects, FAZ goes up, and, indeed, FAZ has broken out of its down trendline on extraordinary accumulation. Interesting!