FAZ'zled

FAZ corrected to its 38.2% Fibonacci point yesterday, and held. The 38.2% retracement calculated at 4.94, and FAZ bottomed at 4.90, but call it close enough. The important point is that it held, even though the price action has not broken out of the short-term channel created by the retracement move. The action so far seems a flag formation of either a rectangle or pennant, but a flag. If the flag-flies-at-half-mast adage applies, a resumed upward movement should carry to the 6.10 area. Note, too, yesterday's retracement was on lower than average volume.

FAS, FAZ's mirror, also corrected, but did not reach its 38.2% level, stopping instead at the old, long-term trendline (heavy blue). Its correction also was on light volume, and appears to be forming a flag.

Both FAS and FAZ are coming out of a daily Bollinger squeeze formation. That formation is susceptible to head fakes, where price breaks out in one direction, but quickly reverses and goes in the opposite direction. Point&Figure (P&F) charting target for FAS is 5.50, a significant retracement of the movement off the FAS bottom of 2.32 to its subsequent peak of 13.27. This retracement closely matches the Fibonacci level of 70.7%, and is not unusual since first retracements off a long-term bottom tend to be deep, or a significant percentage of the upward movement. FAZ's P&F target has not recalculated, yet.

Tactic for the day is to watch for action indicating a resumption of upward movement in FAZ, taking a position when it breaks out of the flag formation. Set a stop loss thereafter below a possible pullback to the upper boundary of the flag. It could well be, the hesitation at 4.90 is a pause midway in a further decline to a deeper retracement, say, 50% or 61%, before price will continue its upward movement. Should the Bollinger squeeze prove to be a head fake, trade FAS as it resumes its climb.

Do keep in mind that trading FAZ is a counter-trend trade since the long-term trend of FAS is up, and this downturn is a correction r retracement of that longer-term trend. That means, be light of foot, quickly exiting should conditions go adverse, but that is good trading advise in any situation--just more so in counter-trend.