If You Can’t Explain It, Fibonacci Can

June 7, 2001
Eddie Kwong

Most people don’t know, and
I don’t either, whether the effect of Fibonacci retracement
levels is purely coincidental or real. As you know, widely known levels are
38.2%, 50% and 61.8%. I have no idea exactly how many traders and investors use
Fibonacci, but we should not ignore it for the simple fact that I have seen,
numerous times, stocks bounce when they reached near Fibonacci levels. Let me
give you some examples.

Here is a daily chart of Pixelworks (PXLW).
The red horizontal line is a 38.2% retracement level of the April 3 low to the
May 9 high. Mysteriously or expectedly, the stock successfully bounced off the
level twice on May 16 and May 30. It may be a simple case of attempting to rally
out of a pullback, but still, the fact is it happened near the Fibonacci level.

RSA Security (RSAS)
broke down below its 50-day moving average on May 31, but its downward move was
temporarily halted at the 50% retracement level of the April 4 low to the May 21
high as you can see below.