Fibonacci Extensions On A Penny Stock Chart: Rite Aid Corp. (RAD)

(NYSE:RAD) stock may have traded up to $50 per share in 1999 but since 2009 RAD stock has been a penny stock. The drug store's shares printed an all-time low in January 2009 ($0.20) which now seems a good long entry point. RAD shares’ price is ranging between 0.90 and 2.00 during the last couple of years. The stock made an impressive upward move in the beginning of 2012 up to $2.00, which is also the 100% Fibonacci extension level in the weekly chart apart from the range’s resistance level.

Fibonacci extensions is a technical analysis’ tool that shows probable hidden support or resistance levels at prices where traders don’t expect a retracement or pullback. If a Fibonacci extension level coincides with another technical indicator, the importance of that price level increases significantly as technical analysis clearly states. Short selling at the 100% Fibonacci extension/3-year resistance level should have been the way to trade this penny stock.

RAD Weekly Stock Chart - Fibonacci Extensions

What about long positions? An excellent entry to buy RAD stock was in October 2011. RAD shares just touched the support level at 0.90 followed by next week’s bullish candlestick formation. Even if long positions weren’t closed at $1.40, the 100% Fibonacci extension level at $2.00 must leave no choice for buyers. No one can be one hundred percent sure that RAD shares won’t be going back up to double-digits prices, yet neglecting the strong resistance at $2.00 is almost suicide for RAD stock trading. Scaling out 60 to 80% of the initial position might have been the best option, so that traders can benefit from a possible breakout. Given the importance of the resistance level at $2.00, the breakout will be a mighty one. However I’m not expecting a breakout to happen soon, since the stock retraced back to 76.40% Fibonacci retracement level, weakening the 6-month uptrend.

Disclaimer: I’m neither long nor short RAD.