I get asked a lot about Fibonacci and why I use it so often. If by now I haven’t made that perfectly obvious, the reason we use it is because it works! Fibonacci levels help us set price targets and, most importantly, manage risk. The market tends to respect these levels, so it would be foolish for us to ignore them.
In our NEW Charting School, I explain exactly how I calculate these levels and walk you through a bunch of real life examples where they helped us over the years. You can watch Lesson 1 here for Free, and then decide if you’d like to continue with the rest of the course.
Today I want to walk you through the process of analyzing shares of Abbott Labs. But first, why Abbott Labs? Why am I interested in this name?
Well, Medical Device stocks are starting to come up in conversation with regards to the continued sector rotation we’ve been witnessing in recent months. When I think about these stocks, I immediately laugh because they’re really Tech stocks, stuck in an otherwise disappointing healthcare sector (relative). Look at the charts of the Medical Device stocks. They look like the charts of the best Tech stocks, and certainly not like most Biotech or Pharma names, for example.
So with that “Tech in other sectors” concept in mind, we turn our attention to the biggest names in Medical Devices. $ABT is right near the top of that list representing 14% of the Dow Jones U.S. Select Medical Equipment Index. We want to calculate the long-term Fibonacci extension levels based on their initial and largest correction. In this case the 1999-2007 correction, as you can see here below: [Read more…]