Fibonacci Projections and Price Targets
A common characteristic of price action is that it will make a directional move followed by a partial retrace before continuing in it's initial direction. Here is one method used to find potential important zones in the event that this directional move continues. Below is a chart of the SPY pushing lower then retracing up before forming a new intermediate low on 10/10/14. The initial push down and retrace are marked below.
We will use that initial move lower and pull back denoted on the above chart to produce a Fibonacci Projection. This next leg down of the ABC pattern will be a measured move based on that initial thrust lower. Below see the price targets at the different projected ratios. The 161.8% Fib of 182.2 turned out to be an accurate target, very close to the actual low of 181.92 that formed on 10/15/14.
Now using Fibonacci Projections on the rebound back up
In the chart below, SPY tapped the 161.8% projection making an intermediate low, then volume began to decline from it's 10/15/14 peak while price bounced higher (a classic V bottom). We will use the very first reaction lower off of this bounce to produce another Fib projection of potential resistance points or price targets for a potential move back up. The move up and slight retrace are marked below.
By 12/5/14 the SPY had staged an impressive rebound all the way to 208.47 almost an exact hit of the the 261.8% Fib Projection, 208.62