A Counter-Trend Rally


System Trades: None (see discussion below regarding shorter-term signals). 

A Counter-Trend Rally 

The only question I have is whether this counter-trend rally is of a small or large degree. I'm going with the former, but first a little perspective on today's rally:

This is the entire decline from the August 31st top in IWM (Russell 2000 ETF), from 173 to 146. Today has retraced about 4 of those 27 points. Let's drill down.  

Below the short-term IWM chart (180 minutes) with minimum Fibonacci retracements of the last leg of the decline. This last leg down started with a Short-Term Sell Signal on Oct 16th, 30 minutes before the close*. It is this leg down that is being retraced before the next leg down takes hold. The first Fibonacci retracement level, 38.2%,  is at 150.77, just above current levels. After that, its the 50% level at 152.32. 

What good are these levels since price can keep rising through to successive levels?

A hard reversal down from touching any one level generates a HIGH PROBABILITY ASSUMPTION that the next leg down has begun. Your short-term stop is a reversal back up above that level. In other words, limited risk, unlimited gain, THAT is what these Fibonacci levels are good for. 

*Short-Term signals vs. the Intermediate Term signals: We are using Intermediate Term Signals to trade the system but I will switch to shorter-term signals if this volatility continues and I think they will offer better entries/exits into these legs up and down. The market is entering uncharted waters, so whatever it takes, we will navigate through it.